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?

The Bank of Canada announced a 1/2 point drop yesterday of one of their key rates to 2 1/2%, and made the statement:

Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent

The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.

Normally I would be dancing in the streets and celebrating (the way I was yesterday for the Canadian Personal Finance 1000th Post), however, sometimes things are not as they seem to be at first blush, at least from one bank.

Toronto Dominion: When is Prime Not Prime?

That is actually an excellent question for Michael James, as he is a Pure Mathematician who revels in all things to do with Prime Numbers, however, in this instance Prime means, Prime Lending Rate.

As of two days ago TD (my current bank of choice) had their Prime lending rate (for only their best clients and least risky loans) pegged at 4.75% and their Variable Rate mortgages (at least some) were available at that very rate. Yesterday an odd announcement and change was made that these loans are actually now at Prime + 1%, or 5.75%, thus bumping up the rate for all of these mortgages almost an entire point (and adding much more to monthly payments).

I on the other hand use a secured line of credit which allegedly is at the TD Prime Lending rate of 4.75% as of two days ago. Today, I have seen no change in that rate either up or down, which worries me.

1. The rate should drop 1/2% in reaction to the Bank of Canada rate drop, but it might not
2. The rate might go up 1% as has happened with the Mortgages to reflect the banks concern about liquidity and credit.
3. The rate might only go up 1/2% as a combination of (1) and (2)
4. None of the Above and the rate simply does not change, thus the bank pockets 1/2% increase.

It’s The Economy Stupid

Thanks for the 1000th Posting

Bank of Canada, today announced no changes in their overnight rates, which stands to reason. The exact reason given was:

OTTAWA - The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3 per cent. The operating band for the overnight rate is unchanged, and the Bank Rate remains at 3 1/4 per cent.

The three global developments highlighted in the July Monetary Policy Report Update continue to have a major influence on the Canadian economy. Two of them - the course of the U.S. economy and the ongoing turbulence in global financial markets - have evolved broadly in line with the Bank’s expectations. However, there is an increased risk of a more pronounced interplay between weakness in the U.S. economy and tightness in credit conditions that could affect the U.S. outlook for 2009.

Good to know my debt payments aren’t going up in the near future.
 

Gas Prices

An analyst yesterday predicted Gasoline prices in Canada hovering near $1.00 per liter by Christmas, this would make for a very interesting change of events. Would other prices drop? Would deflation kick in? I doubt it, everyone will simply build that into their profit margins again, but still, not having to spend $160 to pick up my daughter from Waterloo would be nice.

Try Chrome

Yes, I am a google Chrome convert as well. I am writing this post using Chrome, it seems to work just fine and runs relatively quickly as well. Haven’t tried all of it’s bells or whistles, but I like it and it does not seem to be as big a PIG for memory as Firefox.

Carnivals

My article Sunday Thought: Debt is Bad in the Bible Too? posted at Canadian Personal Finance Blog was mentioned at Just Another Day of Catholic Pondering in the Catholic Carnival #188: Journey of Faith