Canadian Personal Finance Blog

Archive for the ‘Bank Rates’ Category

No Rate Hikes

So the Bank of Canada kept their overnight target rate at 1/4 per cent for March, giving us all cheap money for a little while longer. Rememmber that the C.D. Howe institute last week urged the bank to go Harder, Faster with their rate increases, but the bank is holding off for now.

The telling phrase to read in this report is:

“…Conditional on the current outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target….”

So the end of the second quarter, or say the June/July time frame, money is going to start getting tighter, which could make for an interesting summer.

Time to start planning on how you are dealing with your debt (if you have it) with a higher interest rate, or what to do about your Bonds, given interest rates will go up.

Federal Budget Looms

I suppose Larry MacDonald will again be locked in a large room with a bunch of other “sweaty” financial newspaper types in preparation for the Federal Budget scheduled for March 4th. Larry always has interesting stories about what really goes on in that room, while all these “touts” pour over the budget to boil the essence of it down to a 1 minute blurb on TV or 750 words or less for the papers.

Hopefully we shall move back to a more balanced budget and maybe put together a plan to start paying off the national debt (again), but stay tuned, I am sure there will be something exciting on Thursday.

Harder Faster

That is actually one of my favorite April Wine albums, but unfortunately it is also the message the C.D. Howe Institute is pushing for Interest Rate increases this year in their report How Soon? How Fast? Interest Rates and Other Monetary Policy Decisions in 2010.

The report itself is a very interesting read on how and why things have happened in terms of credit and interest rates, however, there is a nasty little recommendation that is in it:

When the overnight rate does begin to rise, the changes must be as aggressive as the rate cuts of 2008 and 2009 with increases of 50 basis points at every announcement date until mid-2011 not seeming unrealistic.

Remember how quick and dramatic the rate cuts were last year? There may be an equal and opposite reaction in terms of speed and rate increase this summer and into 2011, which will cause a tightening of credit and tumult in the bond markets too.

Were you planning on renewing your mortgage, or getting a new one? Might be time to lock into whatever rate you can find now, if you need to, since it seems we are in for a bumpier ride in the interest rate world.

And The Winners Are

Yes there were 10’s of entrants to get the free copies of Quicktax, and the winners are:

• • • 2Hirondelles, who was selected by my son from my lucky Pittsburgh Steelers hat.
    • JohnnyG, who was selected by my wife from that same lucky hat!

I will be contacting you via e-mail on how you would like to receive your free software. Congrats to all entrants.

There will be more giveaways soon (as soon as someone gives me more stuff to give away).

This is getting a little repetitive but Bank of Canada’s key overnight rate remains at 1/4% unchanged again this month. The overall Bank Rate remains at 1/2% as well, which means cheap money continues in the market place.

The statement from the bank is mostly that the recovery continues and we should be out of this whole mess some time near the end of 2010 or the beginning of 2011, but the important line to read is:

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

The end of the second quarter is June, which means interest rates will be going up this year, and you are running out of time to take advantage of these cheap rates to pay down your debt (assuming you are not paying Credit Card debt, in which case, this has no effect on you). If you have a variable rate mortgage can you lock in, or has the bank already altered it’s rates so that locking in might not be as attractive now?

Remember if the bank raises interest rates to say 2.5% somewhere along the line, that is a huge percentage increase compared to where they are right now.

CPI Numbers Today Too

To confirm the Bank of Canada’s inflation statement, Stats Canada will be posting the CPI numbers for the end of 2009, which should be a very interesting statement. With gas prices inching their way back to $1 per liter, I suspect inflation is back it’s just how bad is the question.

The Bank of Canada kept their key overnight rate at 1/4 per cent, yesterday, keeping with their plans to keep the cost of borrowing money low until mid 2010.

In Canada, as expected, the composition of aggregate demand is shifting towards final domestic demand and away from net exports. In the third quarter, the balance of these shifts resulted in weaker-than-projected GDP growth. Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.

So you can read between the lines that inflation is starting to worry the bank a little, but for now they are not willing to turn up rates to maybe combat it before it gets rolling. If fuel prices remain low, inflation may remain under control, but if there is a spike then we may see big interest jumps in reaction to this sooner than June of 2010.

My advice to those who ask continues to be, take advantage of these low rates to PAY OFF debt, not get more debt. If you can afford to make over payments on your debt vehicles, do so, you get more bang for your buck, and you’ll get better pay back than most things you might invest in, these days as well.

TD Rates Up

TD followed through with there promise to screw up my Secured Line of Credit making it a “Prime” (their definition of it, not the Bank of Canada’s) plus 1.0% rate, instead of the “Prime” + 0.5% that it has been for the past 8 years (dating back to my days with Canada Trust). The explanation for this increase was very suspect (in my opinion), claiming that the borrowing markets are tight and it is much harder for the bank to borrow money. What does this have to do with an existing loan that they underwrite?

I think I would respect more a statement like, “See if you can find a lower rate somewhere else, we dare you!”. That kind of statement makes much more sense to me.