Competition in the Canadian Mortgage Market

 

http://www.bankofcanada.ca/en/review/winter10-11/allen.pdf

 

Lisette Amalfi, AMP

Mortgage Broker/Owner

Mortgage Alliance OAC Mortgages Inc.

Brokerage License Number 10928

 

Federal Budget Highlights

HIGHLIGHTS

• The federal budget was tabled earlier today. With all three op­position parties indicating that they intend to vote against the budget, the government will fall on the budget. Under this sce­nario, Canada will have a federal election this Spring unless there is a change of course.

• In the meantime, the budget reflects the economic and fiscal policy intent of the Government of Canada.

• To summarize, today’s release was a stay-the-course budget with a smattering of small mea­sures.

• Highlights include a temporary hiring credit for small busi­nesses and renewed funding for the ecoEnergy retrofit program.

• Return to budgetary balance on schedule in FY 15-16. Surplus one year earlier is within strik­ing distance.

 

 

Lisette Amalfi, AMP

Mortgage Broker/Owner

Mortgage Alliance OAC Mortgages Inc.

Brokerage License Number 10928

 

Oacmortgagesinc

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Mortgages Changes Today - What effect will they have - PropertyWire.ca

What affect will the mortgage rule changes have on the property market in Canada?

Friday, 18 March 2011 08:04

Editorial Team

Tougher mortgage rules starting today are getting a failing grade by mortgage industry professionals who say the federal government effectively dropped the ball in a half-hearted attempt to deal with rising consumer debt.

If Ottawa were genuinely interested in tackling high amounts of personal debt, it needs to address other means of high-interest loans such as credit cards, personal loans and lines of credit, they say.

 

Check out this article

The Importance Of Building Your Brand

When you are standing in a crowd of many, you are faced with a choice - either blend in and hope for the best, or stand out- and step up. In the real estate and mortgage professions, where the marketplace is filled with so many faces, messages and communications, one way to cut through the competing noise and define the thoroughfare for your message is to build a recognizable brand for yourself.  ...

Read More

“We need more legislation on access to other types of loans,” says Claire Drage, a mortgage agent with  Dominion Lending Centres Home Capital Solutions Inc. in Oakville, Ont.

“Do you really need a Chase card? Capital One? Visa and Mastercard? Sears? Bay card? There’s so much easy access to high interest consumer debt.”

As for how the mortgage changes will affect the housing industry, Drage suspects it will be business as usual for the most part.

“The demand will still be there,” she says. “Consumers might have to cut their choices a bit. It’s like going to an arcade and winning coupons and instead of getting to choose prizes from the bottom three shelves, now you get to choose from the bottom two.”

In January, federal finance minister Jim Flaherty announced he would shorten the maximum amortization on Canadian mortgages to 30 years from 35 years, and lower the refinancing limit from 90 per cent of a home’s value to 85 per cent. The government also announced it would withdraw insurance on home equity lines of credit.

The move came after reports about the rising debt load of Canadians.  Statistics showed household debt in Canada surpassed the U.S. for the first time in 12 years. Statistics Canada reported the average Canadian debt-to-income ration hit a record 148.1 per cent.

Kristian Harris, a mortgage broker with Monstermortgage.ca in Toronto believes the government’s mortgage changes will have little impact.

“The government’s purpose of making these changes is to slow down the housing market,” Harris says. “They’re worried about consumer household debt. I think this is a sign the government doesn’t think interest rates will rise substantially over the next 12 to 18 months so they felt the need to implement these new rules. If the government thought rates were going to increase significantly, they wouldn’t need to make these changes.”

Although many focus on the mortgage market when it comes to consumer debt, they should also look at the easy access available to many Canadians for other types of credit, he says, adding that the government should eliminate giving credit cards out to students and distributing Visa card applications at hockey games.

Furthermore, Harris doesn’t think the changes are going to impact the industry or the real estate market all that much. The reduction on a mortgage’s amortization period to 30 years will, however, impact some borrowers as to how much they can qualify for. But at about $100 a month on a $300,000 mortgage, the amount is not overly significant.

“It’s only $35 for every $100,00,” he says. “It’s not a huge difference at the end of the day.”

Adam Hawryluk, a mortgage consultant for INVIS Mortgages in Nananimo, B.C., believes the government’s mortgage changes are a step in the right direction. But he would like to see more sweeping changes that also target education and credit regulations addressing the whole spectrum of debt.

Canadians would be better served if they were somehow educated about debt and money issues, he says. In addition, Hawryluk would like to see the government step in to either lower the interest rates that credit card companies are allowed to charge or make access to credit cards more stringent.

“When people are financially extended beyond their means, it’s a scary situation for the whole country,” says Hawryluk. “The mortgage changes are a step in the right direction because we’ve learned from U.S. housing industry.”

The issue of Canadians carrying debts close to or over the edge has been a challenge for many mortgage professionals. Hawryluk recalls an experience with older clients whose monthly debt payments on credit cards and loans climbed to $3,100. The couple had the added burden of being on a fixed income. Fortunately, they had some equity in their home and Hawryluk managed to consolidate their debts in a new mortgage, giving them much-needed breathing space.

“The woman was crying in my office,” he recalls. “They know they’ll never be mortgage free but on a month-to-month basis, they can survive now. They wished they would have come to me years ago.”

Robert McLister, a mortgage professional who writes about the industry for Canadian Mortgage Trends, gives the new mortgage rules a varied critique. Given Canadians’ record debt levels, McLister believes the government had to pull in the reins on borrowing. He’s just not wild about what they decided to focus on.

“The spirit behind it is wise and well intended,” says McLister. “But I think the actual execution of it is poor because it reduces the probability of excess borrowing overall which is great but, at same time, it handicaps highly qualified borrowers that present virtually no default risk for no good reason at all.”

There are many reasons, says McLister, why a borrower might need an additional five per cent on a refinancing. And they don’t have to do with luxury items. He’s referring to being suddenly faced with an illness or a divorce or perhaps having to send your child off to university. The rules also penalize the self-employed person, who might save the extra funds in a mortgage with a 35-year amortization to keep as a back up for their lack of steady income.

“Removing the flexibility from the market in general for people that are extremely low risk makes no economic sense whatsoever,” he adds.

Calgary’s Marty Laframboise, a mortgage broker with VERICO: Mortgage Planning Central, is critical of the changes. He thinks the government should have mandated that if those with strong credit scores  wanted to stay on a 35-year amortization,  they could do so with biweekly accelerated payments, which would automatically reduce the mortgage term down to 30 years.

“I don’t like the changes,” he said. “They should have been handled differently. It really does take a lot of people out of the price range they’re shopping in.”

Laframboise points to a client who had found a house he liked for $425,000, affordable thanks to the 35-year amortization period. The client had the additional stress that his wife wouldn’t be able to see the house until the end of this month, which means the couple will only be able to afford $395,000 on the new 30-year limit.

“The client is now faced with a situation of having to decide whether to take a leap of faith and hope that his wife will like the house or wait until she comes back and look for something $30,000.00-$35,000.00 cheaper.”

Drage agrees that the country’s overall financial literacy needs a boost. She thinks money, budgeting and debt should be taught to Canadians once they’re in high school. That, she believes, would help prepare post-secondary school students, who are often introduced to credit cards during their college and university days.

Drage has taken some extreme measures with clients struggling to manage their debt loads. She’s taken scissors with her to a client’s home when working on a refinancing application.

“They wanted to swipe and play instead and swipe and pay,” she says.

She’s even advised clients to tear up all but one main credit card. If the client insists on keeping a second card, Drage has advised that the client keep it frozen in ice in an old plastic container in the freezer.

“There’s a way of thinking that it’s easy to get, so it’s easy to spend,” she says. “It’s just a matter of looking at your situation and being realistic. Have a budget and a plan and spend within your means."

 

 

Lisette Amalfi, AMP

Mortgage Broker/Owner

Mortgage Alliance OAC Mortgages Inc.

Brokerage License Number 10928

 

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New Recession?

Recent Global Events Cause Economic Concern But Should Not Lead To A New Recession: CIBC World Markets

Written by Newsroom

Thursday, 17 March 2011 12:55

The recent global events in Japan & the Middle East have undoubtedly given rise for concern

about the strength of the global economy, however, according to the latest GPS Monthly report

from CIBC World Markets Inc., they should not push the world back into recession.

"After riding some strong tailwinds late last year, the global economy finds itself buffeted by

new and, in some cases, completely unforeseen developments," says Peter Buchanan, senior

economist at CIBC. "While the risk of outright recession would still appear to be quite low, those

developments have led to a scaling back of earlier optimism and an increase, for now at least,

in risk aversion.

"Surging gasoline prices raise questions about whether U.S. consumer spending can continue

its healthier pace. With the focus on containing red ink, governments in the industrialized world

are reaching for the spending axe. Moreover, monetary policy in last year's hot performers―the

emerging markets―is poised to tighten further, hampering growth as inflation tops official

targets."

Mr. Buchanan thinks that oil prices would have to reach $160 a barrel to derail the economy

recovery, a scenario he does not see playing out. "Oil has risen dramatically before, only to

crash back to earth, and there are still good reasons why history may repeat itself.

Industrial-country inventories were adequate when the Middle Eastern political pot began

bubbling.

"OPEC likes firm prices, not sky-high, recession-inducing ones that crush oil demand, and the

Saudi's recent output hike suggest the cartel has at least some spare capacity, in contrast to the

situation when oil spiked three years ago."

He notes that strong but not sky-high oil prices are also best for the Canadian economy. "The

Canadian dollar followed crude north in the 2008 spike only until prices hit $100 a barrel. That

would seem to suggest that for Canada the negative effects of costlier oil, like weakness in

trading partners and auto sales, begin to increasingly outweigh producer rents once prices

1 / 3

Recent Global Events Cause Economic Concern But Should Not Lead To A New Recession: CIBC World Markets

Written by Newsroom

Thursday, 17 March 2011 12:55

reach triple digits."

Using a standard statistical modeling approach, Mr. Buchanan found that it takes about a year

for the U.S. economy to feel the full pinch from an oil price shock. As Canada is one of the

world's top dozen net exporters of oil and oil products he found that in the near term higher

crude prices are a modest plus for the economy. A 25 per cent rise in prices - roughly the recent

increase - ordinarily lifts real GDP growth by a couple of ticks in each of the two following

quarters.

Beyond a couple of quarters, the negative effects, including the drag on key trading partners

and auto sales, begin to outweigh the positive, hurting GDP growth. Beyond four to five

quarters, the bad more than cancels the good, and the level of GDP is actually lower than it

would otherwise have been. A further negative is the increasing drag from the induced

appreciation of the loonie on the country's non-energy exports.

The report also notes that in addition to higher oil prices, global growth is also being dragged

down by increased government fiscal restraint, particularly in the U.S. "Although rising debt

levels will result in dramatically higher interest payments over time, cutting spending sharply

while the economy is still recuperating is not without risks," adds Mr. Buchanan. "The blow from

front-load spending reduction is one reason we expected the U.S. growth numbers to sport a

two- rather than three-handle moving into 2011."

The negative impact of oil price hikes and government cutbacks has seen CIBC's forecast for

2011 U.S. GDP growth drop a tenth of a point to 2.7 per cent. Fiscal restraint will continue to be

a drag on growth in 2012 as measures like the $120 billion social security tax cut expire. The

Federal cuts will be further compounded by spending reductions by state governments.

Another risk to global growth is the fact that emerging market economies are likely to increase

monetary tightening and other restraint measures to tackle inflation to ensure long-term price

stability. "That will cool performance in what, to this point, have been some of the world's hottest

performers. While those economies are unlikely to sink into recession, growth simply won't

surprise to the upside the way it has in recent years."

While Canada is not immune to the economic issues facing the global economy the report

2 / 3

Recent Global Events Cause Economic Concern But Should Not Lead To A New Recession: CIBC World Markets

Written by Newsroom

Thursday, 17 March 2011 12:55

forecasts Real GDP growth of four per cent in the first quarter of 2011. As a result, Mr.

Buchanan expects a Bank of Canada rate hike in May.

3 / 3

 

 

Lisette Amalfi, AMP

Mortgage Broker/Owner

Mortgage Alliance OAC Mortgages Inc.

Brokerage License Number 10928

 

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Who will be the right predictor?

Why the BoC won’t raise rates until October

Central bank may still hike rates before summer

Below are two recent articles stating opposite points of view.

·       TSX -246.13 to 13,638.58(Reuters)   as disappointing trade data from China raised worries about the strength of the world's second-largest economy and sent prices for oil and metals sliding. China reported a surprise trade deficit of US$7.3 billion in February as surging prices for oil and other commodities pushed up its import bill. Economists had expected a US$4.9-billion surplus. Additionally weekly US jobless claims took an unexpected jump.

·       DOW -228.48 to 11,984.61 The European debt crisis also weighed on markets after Moody’s downgraded its credit rating on Spain by one notch to Aa2. With trouble across the Middle East, the ongoing woes of heavy debt and restructuring in Europe and now the one shining beacon of light, China, is showing some signs of pausing

·       Dollar -.73c to 102.50c USD   Soft commodity prices helped push the Canadian dollar down

·       Oil -$1.68 to $102.70USD per barrel   amid unrest that has toppled governments in Tunisia and Egypt and sparked heavy fighting in Libya. There are fears such upheavals could spread to oil producers in the Persian Gulf, particularly Saudi Arabia , where police reportedly opened fire on protesters at a rally in the eastern city of Qatif on Thursday. Meanwhile, Libyan rebel forces beat a retreat from the strategic oil port of Ras Lanouf on Thursday as the army of Moammar Gadhafi army pounded the town with artillery. Today will show effects of a massive earthquake and tsunami struck which Japan, triggering knee-jerk flight to safety selling in regional markets as well. 

·       Gold -$17.10 to $1412.50 per ounce     Gold stocks also sold off

·       Canadian 5 yr bond yields markets -.08bps to 2.67. The spread (based on the MERIX 5 yr rate published rate of 4.14%) has now settled into the middle of the comfort zone at 1.47.    http://www.tmxmoney.com/HttpController?GetPage=BondsAndRates&Language=en  .

The rate of return on your bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.

Why the BoC won’t raise rates until October

Paul Vieira  Financial Post March 7, 2011 

OTTAWA — The improving economic backdrop has strengthened some economists’ view that the Bank of Canada will begin raising its benchmark rate in the  – either in April or May – or at the very least in July, once the U.S. Federal Reserve is scheduled to end its US$600-billion asset purchase plan.

Not so the Bank of Nova Scotia. It is among the few research houses on Bay Street that believe the Bank of Canada, led by governor Mark Carney, will wait much longer – to October to be more precise. (Meanwhile, analysts at Capital Economics have reiterated their view the central bank remains on hold for all of 2010.) The main culprit: A weak U.S. dollar which could drive the loonie to US$1.08 by the end of the year.

Scotiabank economists Derek Holt and Gorica Djeric offered a detailed explanation of its view in a note to clients. Here is a summary of Scotiabank’s arguments:

• THE GREENBACK WILL KEEP SLIDING

Scotiabank is just plain bearish on the U.S. currency, as the Federal Reserve continues to pump cash into the system and keep its benchmark rate near zero. But the bank also believes there is a chance the White House further extends stimulus measures agreed upon late last year as opposed to allowing them expire – likely earning a rebuke from bond raters and fixed-income investors as Washington’s fiscal status would deteriorate further. That, in turn, would make the U.S. dollar even less favourable and likely adds to the loonie’s strength.

That could drive the loonie to as high as US1.08¢ by the end of 2011 — a full 12 cents above the most dovish view on the loonie, Scotia admits.

“This type of CAD strength imposes net tightening on the Canadian economy that we believe will do the Bank of Canada’s tightening for them. It is difficult to envision further Bank of Canada tightening when our expectation is that Canadian dollar will be lit up apart from what the Bank of Canada does.”

• GLOBAL UNCERTAINTY WILL CONTINUE

Turmoil in North Africa and the Middle East, and the impact that is having on energy prices, justifies the central bank keeping its powder dry for now. “No one has a clue as to how various geopolitical developments … will fully unfold,” Scotiabank said.

Also lurking in the background is Europe’s sovereign debt worries, and what policy makers will eventually agree to at a summit late this month.

• ECONOMIC SLACK REMAINS WIDE

Despite the better-than-expected fourth-quarter growth data, it likely didn’t have much of an impact on the country’s output gap that according to the last Bank of Canada estimate stood at 1.9% of the economy, Scotiabank said. It added it foresees risks to demand growth from government spending cuts, high commodity prices and new mortgage rules.

Furthermore, recent historical evidence would suggest there is a weak link between a narrowing output gap and inflationary pressure, especially since the Bank of Canada adopted an inflation-targeting regime about 20 years ago.

• TIGHTENING ALREADY UNDERWAY

There are developments underway which have the same impact as a rate hike, from a higher Canadian dollar; tougher mortgage financing rules which begin to take effect this month; the withdrawal of government stimulus; and, eventually, higher bond yields which will translate into higher rates on consumer loans.

• DOVISH FED

Fed chairman Ben Bernanke continues to signal a cautious, dovish approach, with expectations rate hikes begin sometime next year. Raising rates in Canada now would just push an already strong loonie higher.

• INFLATION TARGETING REGIME

It is still not clear what the Bank of Canada’s inflation-targeting regime will look like once it is renewed at the end of the year. “Therefore, it’s not clear to us if the Bank of Canada hikes the minute its operational core target gets to 2% in this cycle or is expected to do so,” Scotiabank said.

• FEDERAL & PROVINCIAL ELECTIONS

It remains unclear about whether the federal parties go on an election campaign this year once the federal budget is tabled on March 22. Still, Scotiabank said the central bank has raised rates only once during an election campaign in the last 20 years – in 2006, when the strong economy justified a hike – and will likely show caution again. Compounding matters are a series of provincial elections due in 2011, including Ontario where incumbent Premier Dalton McGuinty has repeatedly voiced concern about rate hikes and the upward push it provides to the Canadian dollar. http://business.financialpost.com/2011/03/07/why-the-boc-wont-raise-rates-until-october/

Central bank may still hike rates before summer

Andrew Pyle, On Friday March 4, 2011,

The Bank of Canada has now kept its official interest unchanged at 1 per cent for the fourth meeting.

Those with floating-rate debts will no doubt be relieved; however, economists were looking for a signal from Mr. Carney and crew that improving economic conditions were paving the way for a return to rate hikes sometime soon.

Had this week's policy meeting taken place a few weeks ago, it's likely we would have received that signal. Indeed, most indicators have pointed to stronger-than-expected activity in Canada and the U.S., while emerging economies have maintained a torrid pace of growth.

That would have been before the recent developments in Egypt, Tunisia, Yemen and now Libya. The grassroots uprising against incumbent regimes might be welcome from a democratic ideal perspective, but it has created a rift in energy markets.

Crude awakening

After dipping briefly below $85/barrel in February, the price of crude oil has now broken above $100 for the first time since October 2008, testing $103.40 last week — the 61.8 per cent retracement mark from the July-December 2008 collapse.

A close above this level will increase the odds of a move to $120 (recall that $147.27 was the intraday high from July 2008). And if you thought the recent spike in pump prices was unnerving, gasoline futures have already crossed above the 61.8 per cent retracement level and are trading above three bucks (US) a gallon.

In July 2008, futures broke above $3.70/gallon. Even if prices simply hold near current levels, average pump prices in Canada could easily gravitate towards $1.30/litre. That's not good news for those planning to drive to their March break vacation spots, or for those returning snowbirds.

One might suspect the Bank of Canada would see the boost to inflation, that will come from commodities like oil and gasoline, as something that needs to be worked against through tighter monetary policy, but that's old school.

These commodities, like food (which is also seeing some inflation strain), are essentials and represent a significant share of our non-discretionary spending. Unless incomes rise by the same amount as the cost of these essentials, everything else being different, there will be less to spend on discretionary goods and services. In other words, real consumption growth in Canada could slow.

Not so fast

How much of a slowdown we experience in consumer spending (and let's throw in housing expenditures too), depends greatly on that above-mentioned phrase "all other things being equal."

If employment grows at a decent clip and wages go with it, then the affect on spending will be less pronounced. As of the end of 2010, average weekly earnings in Canada were up 4.5 per cent over the same period a year ago, which was the fourth-best growth rate in earnings since records started in the early 1990s.

To put this in perspective, when crude oil was climbing towards $150 back in the summer of 2008, weekly earnings growth was heading in the opposite direction.

There were other headwinds facing Canada back in 2008, including the cost of borrowing. When oil reached its peak, the 5-year conventional mortgage rate in Canada was above 7 per cent. Today, it sits near 5.5 per cent. The 1-year rate was also close to 7 per cent (yes, we had a very flat yield curve before the walls came tumbling in), compared to 3.5 per cent today.

Now, I'm not suggesting that we're going to stay in interest rate limbo forever, but the Canadian consumer is in better shape to handle higher pump prices today than back two years ago.

How long can they sit on the fence?

What the Bank of Canada has to be careful of here is the oil price shocks emanating from across the pond turn out to be temporary and there is no slowdown in consumption growth. Bank economists are already looking towards 2012 as the likely period where excess capacity in Canada's economy disappears and inflation returns to target (using the core inflation measure).

It is easy, however, to accelerate that trip back to zero excess and just as easy to push the economy into a situation of excess demand.

Coming back to the Bank's decision this week, it may have been surprising to see it lean against speculation of near-term tightening. But, it would be a mistake to assume the Bank can't and won't pull the trigger on rates before the summer.

There are two policy meetings left this half (April and May), so if Mr. Carney and crew wake up and realize there is too much potential inflation risk in leaving rates unchanged, they will need the April meeting to deliver the guidance towards a May rate hike — something economists thought was going to happen this week.

And if energy price shocks don't intensify and the Bank fails to deliver such guidance, don't be surprised if the bond market creates the guidance for them. http://ca.finance.yahoo.com/news/Central-bank-still-hike-rates-yahoofinanceca-1276928971.html

 

 

Lisette Amalfi, AMP

Mortgage Broker/Owner

Mortgage Alliance OAC Mortgages Inc.

Brokerage License Number 10928

 

Oacmortgagesinc

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Report calls for increased mortgage qualification standards

| Thursday, 3 March 2011

 

 

A report by a six-person task force recommends that banks take more responsibility for improving Canadians’ ability to manage and repay debt, while also suggesting the federal government introduce more stringent standards for mortgage qualification.

 

Action Canada’s Task Force on Household Debt, which has been meeting for the past six months, released its report entitled “Debt Crunch: Policy Recommendations for Addressing Canada’s Record Level of Household Debt, which called on the government along with Canada’s banks and financial institutions to implement a Code of Conduct on Lending (CCL) to “promote standards that would decrease borrowers’ financial vulnerability associated with high levels of household debt and ensure they understand the potential risks associated with mortgage and consumer debt.”

 

Derek Dunfield, from MIT’s Sloan School of Management and a member of the task force, suggested Canada could be in for a reckoning, and argued banks needed to play a more active role in discouraging Canadians not to borrow more than they can afford.

 

The report referred to the “culture of borrowing” in Canada, which presents two possible problems for the economy. If interest rates rise and housing prices drop, more people could begin to default on their mortgage and credit card payments, Dunfield said.

 

As well, “an equally worrying – and perhaps more likely scenario – is that interest rates go up a little – and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending.”

 

Since personal spending on consumer goods and services accounts for 58 per cent of Canadian gross domestic product, such a drop could lead to a made-in-Canada recession, Mr. Dunfield said.

 

The report outlined five key areas the CCL should focus on: matching loan products to repayment plans, using more conservative amortization periods to qualify mortgages, offering loans based on need not affordability, offering higher loan repayment methods as the default option and recognizing financial awareness as a corporate social responsibility.

 

In its call for more stringent mortgage qualification standards, the report said this could be done “by implementing a higher test interest rate or shorter “qualifying amortization”. The qualifying parameters would be used to determine the maximum mortgage value a consumer could obtain. Should the consumer then chose to amortize over a longer period, they would not be eligible for a larger mortgage. Instead they would be able to reduce their monthly payment by spreading it out over the extended amortization period.”

 

 

 

Lisette Amalfi, AMP

Mortgage Broker/Owner

Mortgage Alliance OAC Mortgages Inc.

Brokerage License Number 10928

 

Oacmortgagesinc

Follow us on Twitter!

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Bank of Canada Leaves Overnight Rate Unchanged

Bank of Canada Announcement - Rates Remain Unchanged
Written by Newsroom
Tuesday, 01 March 2011 10:05
Would they or wouldn’t they? This was the question on many Canadian lips for the last couple of weeks. There has been much talk that a rise in interest rates in inevitable. That may be so—but not today.
The Bank of Canada “is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent. “
Despite all the buzz and speculation about interest rates, with reasonable Canadian
economic growth, political turmoil in Libya and the price of oil, and a myriad of other factors, the Bank of Canada has held its status quo for interest rates, again.
This latest announcement marks the fourth consecutive time that Mark Carney has left rates unchanged; he is not without his reasons though.
The Global economy is moving along as expected, although “risks remain elevated’; perhaps most the mot prominent flag in this regard is the storm that is churning in Libya- and the possible surge in oil prices; This gives Canadian investors and consumers alike an unwelcome taste of déjà-vu- from the pre-recession days—when oil prices were widely forecast to reach between $200-$300/ barrel.
That said, the Canadian economy is modestly beating growth forecasts; the US economy
continues to chug along, put in sustained motion by government stimulus; similarly, businesses are continuing to spend, and are starting to contribute to overall economic growth, through investment partially funded by government stimulus.
In terms of inflation, Canadian inflation levels are moving reasonably, and are keeping in line with what is expected- “Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy. “ Global inflation continues to grow—but at a manageable pace.
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Bank of Canada Announcement - Rates Remain Unchanged
Written by Newsroom
Tuesday, 01 March 2011 10:05
“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.“
The changes to mortgage lending introduced by Jim Flaherty earlier this winter are set to take affect this month; there has been widespread concern that the combination of tighter lending restrictions, shorter amortizations and higher rates, might cause stress to an already heavily debt burdened typical Canadian consumer. At least for now, they will get a reprieve from higher rates.
What will Carney’s next move be, and what will the implications be on Canadian borrowers and the economy alike? Let the speculation begin for the next rate announcement- which comes down on April 12.
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