Canadian Personal Finance Blog

The Bank of Canada lowered it’s overnight rate by 1/4% this morning. 

Given the pundits were asking for 1/2 % it is interesting to see that this is only a 1/4% cut, but this is how they explain it:

Three major interrelated developments are having a profound impact on the Canadian economy. First, the intensification of the global financial crisis has led to severe strains in financial markets. The associated need for the global banking sector to continue to reduce leverage will restrain growth for some time. Second, the global economy appears to be heading into a mild recession, led by a U.S. economy already in recession. Third, there have been sharp declines in many commodity prices. The outlook for growth and inflation in Canada is now more uncertain than usual.

Interesting to see now if the banks reflect this drop?

What do you think?

As usual on the day that the Bank of Canada is about to announce an interest rate change, I typically wait until that is announced, but today, I’ll simply “flash” that information when it is available at 9:00 AM ET. 

The prognosticators are saying this is most likely another 1/2 point drop, however, whether the large banks follow suit or reflect the entire 1/2 point drop, is another story completely, as we have seen, some banks are attempting to help their margins by expanding the working area for their borrowed moneys (Toronto Dominion for one).

Bank Rate Since 2000?

Here is an interesting graph, using the data from the Bank of Canada’s web site. It shows the key overnight rates over the past 8 years, interesting to see how low rates have been and yet still there is problems with high interest rates causing folks to have problems with their debt loads?

The graph is missing the last 1/2 point drop that happened earlier this month (apologies for the inaccuracy, I am just figuring out how to do this stuff on the web).

Bank of Canada Overnight Rates since 2000

Deflation?

Now that Gasoline prices have dropped by about 30% in Ottawa, here is an interesting question, are we now in a deflationary period? Will all the surtaxes and rate increases levied because of high gasoline prices be lowered now? Will I ever answer these rhetorical questions? Anyone care to comment?

Being Saturday we can look back on this past week and see a few of the burning issues that have bubbled out of the Financial Cauldron:

• A recovery may be on the horizon for equities, but this is only good news if you were out of the market, if you stayed in, this just means you might get some value back.
• Much talk of doom and gloom in terms of jobs and lay offs coming in all industries.
• Governments at all levels in Canada talking about deficit financing again, and how the downturn may force governments to start running deficit budgets.
• The RBC brain trust commenting that there most likely will be another 1/2 point interest rate drop next week from the Bank of Canada. Can we reach a negative interest position?
• An interesting posting talking about how only 45% of Canadians are thinking of getting TFSA accounts in the new year.
• Mutual Fund redemption at almost a “run” rate with funds being sold off at a very high rate.
• The Canadian Loonie which was at $1.10 in the early spring is now down to 84 cents to the American Greenback, due to commodity price drops.

On the positive side of things, lower interest rates is always a good thing if you are a debtor like me. Lower gas prices are very good (in Ottawa below 95 cents a liter has been seen), but what will this do to the consumer price index? Will we have a negative CPI soon? Deflation coming?

All interesting questions to think about in the coming week.