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The Bank of Canada Has Increased Rates Again
2010-07-21 | 13:47:32
The Bank of Canada announced yesterday morning that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. Based on this increase the new Bank Prime Lending Rate is 2.75%. The Bank of Canada Stated that although there is some recovery in the global economy it is still unstable. The Bank feels that a slower growth in all economies can be expected as more people, businesses and governments will be watching their money closely.
In Canada, housing activity has started to decline from high levels but employment growth has resumed. Business investment on the other hand has not recovered from the declines it suffered during the recession. The Bank expects the economic recovery in Canada to be more gradual than it had originally anticipated. Their prediction has now been revised with economic growth figures of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revisions projects a slightly slower growth than previously stated. The Bank now expects the economy to have fully recovered by the end of 2011, two quarters later than had been anticipated.
The Bank’s overall outlook is that there is still considerable uncertainty in both our own domestic economy as well as the global economy. Any further rate reductions would have to be weighed carefully against both of these economies. The decision to increase the overnight rate still leaves our variable rate mortgages at extraordinary levels. With Prime now at 2.75% lenders are offering Prime minus .60 or 2.15% and some with short term variable rates at Prime Minus .70 or 2.05%. Further discounting from prime is still a possibility which makes variable rates a good option. As the Bank of Canada increases the Over Night Rate we may have lenders competing for business and discounting their Prime Lending Rate. The next scheduled announcement by the Bank of Canada will be Sept 8th 2010.
Housing Starts Expected to Increase
2010-06-11 | 13:01:27
The Canadian housing market gets a few indicators in the coming week, following this past week’s warning from the Canadian Real Estate Association that the residential real estate sector will see a slowdown this year and next.
On Tuesday, Canada Mortgage and Housing Corp. is expected to release housing-start figures for May. On Thursday, Statistics Canada releases its new-home price index for April.
The following week, CREA will release figures on sales of existing homes in May. Some local numbers, such as for Ottawa and Calgary, have already been released, showing some sluggishness.
Both the scheduled housing reports for the coming week deal with the new-home market, which was slower to kick into high gear in the recent cycle than existing home sales. It might well be that the new-home market keeps its momentum a bit longer even as the resale market slows, as economists expect further gains in both the housing-start and new-home price figures.
Housing starts are expected to come in at an annualized rate of 205,000 for May, up from a revised 200,700 in April. It has spent several months close to the 200,000 level, which is thought to be unsustainable in the long term because it easily outpaces Canada’s typical household-creation rate of 175,000 a year.
The Bank of Canada Raises the Target for The Over Night Rate
2010-06-01 | 18:42:48
This morning the Bank of Canada increased the overnight rate target to 1/2 per cent
and re-established the normal functioning of the overnight market. This will most likely push lenders to increase their respective Prime Lending Rate from 2.25% to 2.50% over the course of the next couple of days.
The Bank of Canada stated in their announcement today that there are signs of global economic recovery although it is increasingly uneven across countries. There is strong momentum in emerging market economies, some consolidation of the recovery in the United States, Japan and other industrialized economies, and the possibility of renewed weakness in Europe. In most countries recovery still remains heavily dependent on monetary and fiscal stimulus. Recent tensions in Europe are likely to result in higher borrowing costs and more rapid tightening of fiscal policy in some countries – an important downside risk identified in the April Monetary Policy Report. Thus far, the spillover into Canada from events in Europe has been limited to a modest fall in commodity prices and some tightening of financial conditions.
Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent
in the first quarter, led by housing and consumer spending. Employment growth has resumed.
Going forward, household spending is expected to decelerate to a pace more consistent with
income growth. The anticipated pickup in business investment will be important for a more
balanced recovery.
Based on these current economic conditions the Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market. The Bank of Canada felt that a minor increase in the over night rate still leaves lots of room for growth in our economy. Any further increases or decreases to the overnight rate would need to be carefully evalutated. The next scheduled date for announcing the overnight rate target is 20 July 2010.
The Bank of Canada May Not Raise Rates In June After All
2010-04-23 | 05:42:07
In Thursday's report, the Bank of Canada said it is planning for the dollar to hover around parity for the next three years and listed it as a major impediment to strong growth because it will make exports less competitive in global markets. The Bank also stated that Canada is leading the other G7 countries out of recession with the fastest growth in a decade, but it will be trailing those countries in a few years. The central bank's latest economic outlook released Thursday makes several bold predictions, including that Canada's fast start out of last year's slump is already slowing, that the housing boom is fizzling out, and that the country's long-term growth prospects are discouraging. Governor Mark Carney cautioned that we should not to be so sure that Canada's central bank will raise its key interest rates in a matter of weeks. On Tuesday, the Canadian dollar shot up more than 1.5 cents to above parity with the U.S. currency after the Bank of Canada said it was dropping its promise not to raise rates before July at the earliest. Carney somewhat contradicted the impressions left by the announcement in a news conference Thursday by stating that there is still considerable risk in the global economy. Mark Carney's stated that, "There is nothing pre-ordained from this day forward," when questioned about interest rates A big reason the economy has shot out of recession is that Canadian consumers, particularly home-buyers, have "front-loaded" their purchases because of record low interest rates. Canadians that bought homes in the past six months, or took advantage of the now defunct home renovation tax credit, won't be doing so in the future, hence bringing an end to the housing sector boom. Housing, which is contributing about 0.6 per cent to economic growth this year, will actually be a slight drag next year, according to the Bank of Canada. That doesn't necessarily translate to an outright decline, but it does foresee prices and sales levelling out.For the bank, that is a good thing because it regards the housing market as too hot for home-buyers' own good. It has warned repeatedly that households should make sure when they purchase a home that they will be able to afford the monthly payments once interest rates rise. The bank also issued a more detailed explanation of its fears about inflation that provides more ammunition to analysts who expect Carney to raise the policy rate from 0.25 per cent to 0.5 per cent at the next opportunity, June 1.
Toronto's Variable Mortgage Rates Will Remain At Historical Lows
2010-04-20 | 08:25:50
The Bank of Canada announced today that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent. The Bank Prime Lending Rate will also remain at 2.25%.
The Bank of Canada stated that global economic growth has been somewhat stronger than projected. Despite recent progress, considerable uncertainty remains about the durability of the global recovery. In Canada, the economic recovery is proceeding somewhat more rapidly than the Bank had projected in its January Monetary Policy Report. The Bank now projects that the economy will grow by 3.7 per cent in 2010 before slowing to 3.1 per cent in 2011 and 1.9 per cent in 2012. At the same time, the persistent strength of the Canadian dollar, Canada’s poor relative productivity performance, and the low absolute level of U.S. demand will continue to act as significant drags on economic activity in Canada. The Bank expects the economy to return to full capacity in the second quarter of 2011.
In response to the global recession, the Bank lowered its target rate rapidly over the course of 2008 and early 2009 to its lowest possible level. With its conditional commitment introduced in April 2009, the Bank also provided exceptional guidance on the likely path of its target rate. This unconventional policy provided considerable additional stimulus during a period of very weak economic conditions and major downside risks to the global and Canadian economies. With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus. The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 per cent inflation target.
Based on the Bank of Canada's outlook for inflation going forward it is highly unlikely that they will continue to keep the Overnight Rate at this level. We can expect an increase to both the Prime Lending Rate and the Overnight Rate if not on the next announcement then definitely the one after. The next scheduled date for announcing the overnight rate target is 1 June 2010.
Banks Raise Fixed Mortgage Rates
2010-04-05 | 13:17:13
Mortgage rates have begun to rise from their record lows, with news Monday that several Canadian banks are increasing several fixed mortgage rates by up to 6/10ths of a percentage point.
The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at Royal Bank, TD Canada Trust, and Laurentian Bank. That's the posted rate, which is routinely discounted by the big banks.
RBC's new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD's rises the same amount to 4.55 per cent. The discounted rate at Laurentian moves up to 4.54 per cent.
How much difference will that make? A $200,000 mortgage amortized over 25 years costs $1,051 a month at a rate of 3.99 per cent. At 4.59 per cent, that jumps $66 a month to $1,117.
The banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank and Laurentian climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.
The posted four-year rate at all three banks jumps 4/10ths of a percentage point to 5.34 per cent.
Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October. The posted five-year rate is now back to where it was for much of last summer.
New mortgage rules that go into effect next month require borrowers to qualify at the five-year rate, rather than the old three-year standard, even if they are applying for a variable rate mortgage.
Variable mortgage rates, which rise in tandem with the Bank of Canada's key overnight lending rate, are not affected by Monday's announcement. But they are likely to be heading up soon too.
Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June. The possibility of an earlier rate hike sent bond yields up, and that appears to have prompted Monday's mortgage increase. Fixed mortgage rates tend to move higher when long-term bond yields rise.
The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.
A report out Monday from CIBC World Markets said rising rates shouldn't be enough to derail the stock market rally — pointing out that the market is historically strong six months before and after rate increases.
A survey released last week by RBC found almost two-thirds of respondents expected the cost of servicing a mortgage to rise this year.
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