Loose Money Continues for the Holiday Season in Canada

The Bank of Canada yesterday announced that it is keeping 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, as well, which should mean that the Big Banks should not be changing their rates (but then again, they are free to do as they please).

$50 notes/Coupures de 50 $

Big Pile of Loose Canadian Money

This means that loose money rates at the Banks should continue on for a while. The Bank’s commentaries were telling as usual:

Inflation has evolved broadly in line with the outlook in the October MPR. Both total and core inflation are expected to increase and return to 2 per cent over the course of the next 12 months as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well-anchored.

That is a sensible opinion, from my point of view. They do go on to say however:

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.

In other words, we will be raising rates, some time, but we are not really sure when, but we will be watching closely to see if any kind of economic recovery heats the economy up.

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Low Interest Rates to End 2011 from Bank of Canada

The Bank of Canada announced yesterday that they will be holding their key overnight rate at 1.0% for now and maybe for the foreseeable future.

Uncertainty around the global economic outlook has increased in the weeks since the Bank released its October Monetary Policy Report (MPR). Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis. The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October, as a result of increased deleveraging and tighter financial conditions, as well as necessary fiscal austerity and structural reforms.

The Bank will of course keep watching carefully to see if that raise rates some time in the future, or more correctly they will try to figure out if the Canadian economy could withstand higher interest rates (or worse when they have to raise the rates to combat the highly simmering Inflation Rate).

A quizzical comment in the document:

Although total CPI inflation has been slightly higher than projected, the Bank continues to expect the inflation rate to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy. Core inflation has also been slightly firmer than projected and is expected to ease as the output gap persists well into 2013.

They think inflation may stay under wraps, but I am not so sure.

Time to think about locking in your Mortgage rates? Maybe, if you don’t think you can withstand interest rates taking a sudden jump, then maybe it is time to lock in, me I will continue to stay with my floating rates (for now).


Cheaper Mortgage Rate or Free Banking?

That was the interesting quandary I was in last week when I went in to talk with my bank about RESPs and such.

Normally when I make an appointment at the bank, I bring a list of things I need to get done and then a few Christmas wishes too. Typically my main wish is to get Free Banking (i.e. no bank fees, or a vacation from fees (yes I already have a PC account, as well)), however this time a co-worker gave me a different idea.

What does this gift mean?

No Not This Type of Bank

As background normally every time I ask for Free Banking and then the bank representative acts as if I am asking for one of their kidneys (and possibly their spleen), and they say it’s impossible to get that, and such, but will eventually relent and give me 6 months or a year of banking for free (i.e. no monthly service charge). It all plays out as a very badly written soap opera, so I decided this time I’d try for something with more impact, which is the interest rate on my Line of Credit.

Currently most secured lines of credit are pegged at Bank Prime (not the bank of Canada prime) plus 1% or something close to that, so I decided to ask, can that rate be lowered (guessing it wasn’t likely, but again, you never know unless you ask, and the worst thing they can say is No).

The meeting was going very well and I had reached the end of the tasks I needed to get done, so I then figured I’d broach the interest rate subject and asked, “Is there any way to get a lower rate on my line of credit?”. The bank rep did not jump out of her chair screeching obscenities, she didn’t even seem remotely perturbed by the request (which made me concerned that it was an easy NO), she simply typed a few things on her computer and said, “Yes, we can see if we can cut your rate to 0.5% over our prime”.

I believe my mouth dropped open and I blinked a couple of times, but regained my composure enough to say, “Yes that would be very good”. Some forms were filled in, but I believe I have been approved for this rate (no fuss, no muss, no complaining about me wanting an internal organ, all very civilized).

This good news got me scratching my head a little, since free banking costs the bank about $14 a month, whereas a rate cut by 0.5% on my Line of Credit is more than that, so what gives? My guess is that the Service Fee is actual bank income, and is very important to the bank, whereas income from Line of Credit interest (while important) is a more variable value, so losing 0.5% is not as important? I may be out in left field on this one, and if anyone has a better idea, I am open to suggestions.

At the end of it all, I am proven correct, if you don’t ask, the answer is always no.



Bank Rates Hover in Canada Again


Interest Rates and the Deathly Hallows

The Bank of Canada decided against increasing it’s overnight rate from it’s existing rate of 1%, which means at least one more month of loose money morals in terms of lending in Canada. While banks have been fiddling around with mortgage and lending rates trying to predict future Bank of Canada policies, the BofC itself has not changed it’s rates in quite a while, and barring Europe or the U.S. having a complete credit melt down (which is not that far out of the question), rates look to stay this way for a little while longer.

An interesting quote from the Bank is:

Total CPI inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices. Core inflation is slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services. Core inflation is now expected to remain around 2 per cent over the projection horizon. Total CPI inflation is expected to return to the 2 per cent target by the middle of 2012 as temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

So they are hopeful inflation will drop back a little (which will only happen if Gas prices moderate, or a huge drop in other aspects of the index), which will mean lower interest rates along with it. I think this is optimistic, but then again, I have been wrong before (and will be wrong again).

Remember that the May Inflation rate was about 3.7%  from Stats Canada, and there is no way that interest rates can stay lower if this keeps up, but our Bank of Canada friends seem to be confident this is a minor bump in the road, but again, we shall see.

The line to read clearly is their comment on world events:

The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.

In other words, be careful, if you think things are getting better, they can get much worse, pretty quickly. We won’t hear again from the Bank of Canada until after Labour Day, unless there is a sudden catastrophic economic situation that arises (say like the above quote?).


Loose Money Continues in Canada

Bank of Canada on Tuesday said they would be keeping Interest Rates the same for another month, and will keep their key overnight rate at 1.25%.  This is not exactly very surprising given we are in the middle of an election, and inflation (for now) seems to be under somewhat control (although watch out this month’s numbers I suspect are going to be quite interesting).

Here is a telling statement from the Bank of Canada yesterday that suggests interest rates will be on the rise sooner:

While underlying inflation is subdued, a number of temporary factors will boost total CPI inflation to around 3 per cent in the second quarter of 2011 before total CPI inflation converges to the 2 per cent target by the middle of 2012. This short-term volatility reflects the impact of recent sharp increases in energy prices and the ongoing boost from changes in provincial indirect taxes. Core inflation has fallen further in recent months, in part due to temporary factors. It is expected to rise gradually to 2 per cent by the middle of 2012 as excess supply in the economy is slowly absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

So interest rates will be going up because Inflation rates rising is going to be on the horizon very soon. The relative strength of

Money RESP

Money Laundering?

the Canadian Dollar is going to make raising rates a little more tricky (since Canada is mostly a country of exports), so that may help slow interest rate increase velocity, but the increases are coming, that is for sure.

Have you taken advantage of these low rates, and paid down your debts? Now is the time to think about that.

Last Year?

Remember last year at this time, when the overnight rate was only 1/4%? That means rates have gone up over 500% since then, amazing eh? What were the rates two years ago at this time, they had just hit 1/4% (overnight), so we had almost a year of completely free money. Amazing how long rates have been so remarkably low, but I think these days of cheap money will soon be coming to a close.



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