Bank of Canada maintains overnight rate target at 1 per cent

Ottawa -May 31, 2011
The Bank of Canada today announced that it 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.

The global economic recovery is proceeding broadly as expected in the Bank’s April Monetary Policy Report (MPR). The U.S. economy continues to grow at a modest pace, limited by the consolidation of household balance sheets. Growth in Europe is maintaining momentum, although the risks related to peripheral economies have increased. The disasters that struck Japan in March are severely affecting its economic activity and causing temporary supply chain disruptions in advanced economies. Commodity prices have declined recently but are expected to remain at elevated levels, supported by tight global supply and very strong demand from emerging markets. These high prices, combined with persistent excess demand conditions in major emerging-market economies, are contributing to broader global inflationary pressures.  Despite the challenges that weigh on the global outlook, financial conditions remain very stimulative.

In Canada, the economic expansion is proceeding largely as expected in the April MPR. The economy grew at an annual rate of 3.9 per cent in the first quarter, reflecting continued strong business investment, smaller contributions from household and government spending, and a modest drag from net exports. Although temporary supply chain disruptions are expected to restrain growth sharply in the current quarter, this is expected to be unwound in subsequent quarters.

While underlying inflation is relatively subdued, the Bank expects that high energy prices and changes in provincial indirect taxes will keep total CPI inflation above 3 per cent in the short term. Total CPI inflation is expected to converge with core inflation at 2 per cent by the middle of 2012 as excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation. On the other hand, the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

Information note:

The next scheduled date for announcing the overnight rate target is 19 July 2011.
A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 July 2011.

Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA –The Bank of Canada today announced that it 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.
As anticipated in the January Monetary Policy Report (MPR), the global economic recovery is becoming more firmly entrenched and is expected to continue at a steady pace.  In the United States, growth is solidifying, although consolidation of household and ultimately government balance sheets will limit the pace of the expansion.  European growth has strengthened, despite ongoing sovereign debt and banking challenges in the periphery.  The disasters that struck Japan in March will severely affect its economic activity in the first half of this year and create short-term disruptions to supply chains in advanced economies.  Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which is being further reinforced by supply shocks arising from recent geopolitical events. These price increases, combined with persistent excess demand conditions in major emerging-market economies, are contributing to the emergence of broader global inflationary pressures.  Despite the significant challenges that weigh on the global outlook, global financial conditions remain very stimulative and investors have become noticeably less risk averse.

Although recent economic activity in Canada has been stronger than the Bank had anticipated, the profile is largely consistent with the underlying dynamics outlined in the January MPR.  Aggregate demand is rebalancing toward business investment and net exports, and away from government and household expenditures. As in January, the Bank expects business investment to continue to rise rapidly and the growth of consumer spending to evolve broadly in line with that of personal disposable income, although higher terms of trade and wealth are likely to support a slightly stronger profile for household expenditures than previously projected.  In contrast, the improvement in net exports is expected to be further restrained by ongoing competitiveness challenges, which have been reinforced by the recent strength of the Canadian dollar.

Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011 and 2.6 per cent in 2012. Growth in 2013 is expected to equal that of potential output, at 2.1 per cent. The Bank expects that the economy will return to capacity in the middle of 2012, two quarters earlier than had been projected in the January MPR.

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.

The persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.

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 material excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

Information note:
A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 13 April 2011. The next scheduled date for announcing the overnight rate target is 31 May 2011.

Bank of Canada maintains overnight rate target at 1 per cent

FOR IMMEDIATE RELEASE 18 January 2011

CONTACT: Jeremy Harrison 613 782-8782

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Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA –The Bank of Canada today announced that it 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.

The global economic recovery is proceeding at a somewhat faster pace than the Bank had anticipated, although risks remain elevated. Private domestic demand in the United States has picked up and will be reinforced by recently announced monetary and fiscal stimulus. European growth has also been slightly stronger than anticipated. Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. In response to overheating, some emerging markets have begun to implement more restrictive policy measures. Their effectiveness will influence the path of commodity prices, which have increased significantly since the October Monetary Policy Report (MPR), largely reflecting stronger global growth.

The recovery in Canada is proceeding broadly as anticipated, with a period of more modest growth and the beginning of the expected rebalancing of demand. The contribution of government spending is expected to wind down this year, consistent with announced fiscal plans. Stretched household balance sheets are expected to restrain the pace of consumption growth and residential investment. In contrast, business investment will likely continue to rebound strongly, owing to stimulative financial conditions and competitive imperatives. Net exports are projected to contribute more to growth going forward, supported by stronger U.S. activity and global demand for commodities. However, the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.

Overall, the Bank projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012 – a slightly firmer profile than had been anticipated in the October MPR. With a little more excess supply in the near term, the Bank continues to expect that the economy will return to full capacity by the end of 2012.
Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the Canadian economy. Core inflation is projected to edge gradually up to 2 per cent by the end of 2012, as excess supply in the economy is slowly absorbed. Inflation expectations remain well-anchored.  Total CPI inflation is being boosted temporarily by the effects of provincial indirect taxes, but is expected to converge to the 2 per cent target by the end of 2012.

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. 


Information note:
A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 19 January 2011. The next scheduled date for announcing the overnight rate target is 1 March 2011.

Personal debt not as bad as it looks

By MICHAEL BABAD
Globe and Mail Blog 14/12/2010

BMO study finds consumers getting into better shape

Monday was D-Day. Statistics Canada reported on it. Bay Street's economists pontificated on it. And Mark Carney, in his own way, declared war on it.

"D" stands for debt, and Canada yesterday reached a high-water mark: For the first time, household debt hit 148 per cent of disposable income and, for the first time since the late 1990s, topped the U.S. equivalent.
Mr. Carney, the Bank of Canada governor, warned of the rising debt burden among Canadian families, and the risks they face when interest rates rates inevitably rise.

"Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks," he said in a speech in Toronto. "Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: The greater the complacency, the more brutal the reckoning."

Economists quickly noted the central bank's growing anxiety over the vulnerability of Canadians who may not be able to juggle their debt payments when that day of reckoning comes. "An erosion in home affordability is expected to slow the pace of mortgage debt accumulation over the next couple of years," said senior economist Pascal Gauthier of Toronto-Dominion Bank. "If it does not, an increasing and potentially worrisome proportion of Canadian households would become vulnerable to higher interest rates."
Not to play down those significant risks, BMO Nesbitt Burns questions whether the state of family finances are as bad as they would appear.

"While debt has risen to record heights, so too have financial assets, due to a rebound in equities and an underlying rise in savings," said deputy chief economist Douglas Porter. "Taking these factors into account, as well as the recovery in Canadian full-time employment, leads to the conclusion that household finances are not nearly as weakened as the dire headlines would suggest."

In his study, Mr. Porter noted that the savings rate in Canada has averaged 4 per cent in the last year, or about double the record low of 2005. And that, he said, does not paint the full picture of Canadian savings because it "narrowly" examines money saved from current income, while ignoring unrealized capital gains and returns from tax-sheltered vehicles.

A better measure, according to Mr. Porter, is the change in net financial assets as a share of disposible income, which has been extremely volatile. Smoothed over a five-year period, though, it has averaged about double the reported savings rate.

"In other words, take all cash, deposits, bonds, stocks, life insurance and pension assets and subtract household debt to derive net financial assets. These net assets have recovered from last year's lows to $2.7-trillion by the end of [the third quarter] ... For reference, that works out to $80,000 per Canadian, or 167 per cent of GDP."

Stock market gains since the depths of the meltdown have pumped up net worth, Mr. Porter said, as he cited the debt-to-asset ratio that Mr. Carney put at its highest in more than two decades. Much of the deterioration there, according to Mr. Porter, came as equities plunged and home prices dipped.

But on the flip side, the "absolute" level of net worth has been rising, stitting now at 6.1 times disposable income. His point is that though household debt has climbed faster than assets in percentage terms, some of that is accounted for in the "skewering" of assets late in 2008. In absolute terms, assets are now rising faster than debt again.

"Amid the cacophony of warnings, balance sheet repair is in fact quietly under way among Canadian households thanks to a slight rise in savings and firmer equity markets, while debt growth is poised to slow more meaningfully amid the clear cooling in the housing market," Mr. Porter added.

"... The singular focus on debt portrays an overly negative picture of Canadian household finances, which have proven incredibly resilient this cycle and likely still have enough cushion to provide a soft landing for spending in the year ahead."

Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA (07/12/2010) – The Bank of Canada today announced that it 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.


The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.

The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.

Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged.

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. 

Information note:
The next scheduled date for announcing the overnight rate target is 18 January 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 19 January 2011.
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To discuss best mortgage rates, or if you are are looking for Richmond Hill mortgages, please feel free to contact me.

Ottawa ponders further tightening of mortgage rules

Garry Marr and Paul Vieira, Financial Post · Sunday, Oct. 3, 2010

TORONTO/OTTAWA • The federal government is once again looking at tightening rules in the Canadian mortgage market, according to a source close to the situation.

Finance officials are set to meet in Ottawa on Monday with some of the country’s leading economists for pre-budget discussions and the subject of whether to tighten housing regulations may come up.

Much of the discussion about changing the mortgage rules seems to stem from comments made by the Bank of Canada governor who last week warned that consumer borrowing could not continue at its present clip.

“Canadian household balance sheets are becoming increasingly stretched,” said Mark Carney, who issued a warning to legislators about taking steps to contain the growth of personal debt. “Historically low policy rates, even if appropriate to achieve the inflation target, create their own risks.”

Read more: http://www.financialpost.com/news/Ottawa+ponders+further+tightening+mortgage+rules/3617608/story.html?goback=%2Egde_3292750_member_31274731#ixzz11XmMvZ3C

Bank of Canada increases overnight rate target to 1 per cent

From Bank of Canada website:

OTTAWA –The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies. In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity. Inflation in Canada has been broadly in line with the Bank's expectations and its dynamics are essentially unchanged.

Against this backdrop, the Bank decided to increase its target for the overnight rate to 1 per cent. As a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative. This is 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 in light of the unusual uncertainty surrounding the outlook.

Information note:

The next scheduled date for announcing the overnight rate target is 19 October 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 October 2010.

Bank of Canada Raises Benchmark Rate

After more than a year at a record low level, Bank of Canada Governor Mark Carney raised the benchmark interest rate for the first time since 2007 by one-quarter percentage point to 0.5 per cent. This is the first time since 2007 that that rate has increased and the Bank of Canada is the first in the Group of Seven to do so since the financial crisis and recession began in 2008.

In a statement Carney emphasized that the increase should not be interpreted as just the first of more to come.

"This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,'' the central bank said. ``Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.''
[Source - mortgagebrokernews]

Watch a discussion on the rate increase from CBC News - Click Here.

TD led the way raising Prime to 2.5% with CIBC and RBC shortly afterwards. Many other banks and mortgage lenders have also followed with a .25% increase in the prime rate.

86% of real estate professionals said they worry.

Realtors polled in a recent cross-Canada survey indicated that the country’s real estate market is both highly competitive and provides the necessary safeguards to protect consumers. 

 

Eighty-six percent of real estate professionals said they worry that severe deregulation in the real estate industry would erode standards of customer service for Canadians who are buying or selling a home.

 

According to the online poll of 1,726 realtors by Royal LePage Real Estate Services, the proposed changes to the Multiple Listing Service (MLS) will do little to improve an already competitive industry.

 

Eighty-six percent of agents surveyed said they are “concerned that the push to foster increased competition in the industry will result in lower customer service standards.” When asked about the state of the current marketplace, 76% of respondents said the industry is “highly competitive.” 

 

Click here to read more from the Royal LePage survey.

 

Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians’ appetite for spending money they don’t have.

 

A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.

 

That’s $41,740 on average per Canadian, or debt to income ratio of 144%, which is the worst among 20 advanced countries in the Organization for Economic Co-operation and Development.

 

“This report is another indication of Canadians’ readiness to consume today and pay later,” said association President Anthony Ariganello. “The concern is do they understand the full cost of paying later?”

 

The Bank of Canada has also voiced similar concerns, with Governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.

 

Most Canadians don’t yet share that concern. The accountants’ survey found that almost 60% of Canadians whose debt had increased still felt they could manage it or take on more obligations.

 

Click here to read more from CBC.

Bank of Canada gives notice on rate hikes, no date

By Janet Guttsman and Ka Yan Ng
OTTAWA (Reuters) - The Bank of Canada laid the groundwork on Thursday to raise interest rates from current record lows, saying it was time to start withdrawing some of the stimulus that helped pull Canada out of recession.

Reinforcing a message it delivered earlier this week, the central bank said it was no longer promising to keep its key rate at 0.25 percent until the end of this quarter.

It forecast growth of 3.7 percent this year, and said core inflation, which strips out one-off factors, was set to stay close to its 2 percent target.

"With recent improvements in the economic outlook...it is appropriate to begin to lessen the degree of monetary stimulus," it said in a low-key Monetary Policy Report that paves the way for Canada to become the first big industrialized nation to raise rates since the recession started.

"The extent and timing of any additional withdrawal of monetary stimulus will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 percent inflation target," it added.
The report added details to a statement the bank made on Tuesday in which it left rates unchanged but made clear that higher rates were coming.

Before that statement few had forecast the bank would raise rates at its next rate-setting date on June 1. But a Reuters poll conducted on Tuesday showed 11 of Canada's 12 primary dealers now expect a June rate hike of 25 basis points.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, edged lower after Thursday's report, showing the market saw rate hikes in 2010 as a touch less likely than it did before the report.

The Canadian dollar rose as high as C$0.9990 per U.S. dollar, or $1.0010, from C$1.0014 per U.S. dollar before the report.

At news conference, Bank of Canada Governor Mark Carney declined to be drawn on the timing of a rate hike. "Next question," he said tersely.


Thursday's central bank forecasts assume an average exchange rate of 99 U.S. cents per Canadian dollar, matching the average of the last month. But a strong dollar is one of a raft of factors that could upset the bank's forecasts, by slowing growth or making Canadian firms less competitive.

"There are still a fair number of key things that they are worried about," said Sheryl King, chief economist at Banc of America-Merrill Lynch.

"The immediate implications for the Canadian dollar are neutral to slightly negative right now because the market has gotten slightly excited and probably a little bit over-anticipatory about very aggressive rate increases, and I don't think these headlines validate that."

TURNING POINT
The central bank said risks to its forecasts were roughly balanced. Stronger growth could boost demand for Canadian exports and add to inflation, while a higher Canadian dollar and poor productivity could slow growth and dampen inflation.

It said global imbalances could "pose significant risks to the outlook" and insisted that advanced economies like the United States need to rein in deficits, while other countries must boost demand and allow exchange rate adjustments.

Carney, who will attend top level international talks in Washington this weekend, said talks about a global tax on banks to cover the costs of any future financial crisis are a "distraction" from core issues such as bank capitalization and liquidity.

The bank expects the private sector to become the sole driver of domestic demand in Canada by 2011, making this year a "turning point" as monetary and fiscal stimulus, which kick-started the recovery, are withdrawn.

Finance Minister Jim Flaherty, already in Washington for the Group of 20 talks, said he was "relatively comfortable" with the Bank of Canada's projections, saying they show Canada is emerging from the recession stronger than any other G7 country.

The central bank said the housing sector, marked by fierce bidding wars in Toronto and Vancouver, had exceeded its expectations, but that activity in the sector should weaken later this year.

(Additional reporting by David Ljunggren, Claire Sibonney, Jennifer Kwan, Euan Rocha and Louise Egan; editing by Peter Galloway)

New Mortgage Rules Take Effect

New mortgage rules take effect in Canada today. I outlined them in a prior post here:

http://ontariomortgageinfo.blogspot.com/2010/02/new-canadian-mortgage-rules-to-come.html

Please note the new Bank of Canada benchmark rate for qualifying variable rate mortgages and 1-4 year terms is currently 5.85%.

Please call or email me if you have any questions regarding the new rules.

Clarification on Qualifying Interest Rate

On February 16th, the government announced new parameters regarding the application of the government guarantee supporting the mortgage insurance industry, but did not stipulate the rules around qualifying interest rates. Effective April 19th, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with an LTV greater than 80% as follows.

Fixed-Rate & Variable-Rate Mortgages

For loans with a fixed-rate term of less than five years and for all variable-rate mortgages, regardless of the term, the qualifying interest rate is the greater of:

• The benchmark rate
• The contract interest rate

For loans with a fixed-rate term of five years or more, the qualifying interest rate is:

• The contract interest rate

Mortgages with Multiple Interest Rates (eg, Multi-Component Mortgages)

Each component must be qualified using the applicable criteria defined above.

CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage Five-Year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01am (ET) each Monday, which can be found at: www.bankofcanada.ca/en/rates/interest-look.html

Bank of Canada maintains overnight rate target at 1/4 per cent

As expected BoC didn't touch overnight lending rate today, see below for press release from their website.

[Source - Bank of Canada]
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The global economic recovery is under way, supported by continued improvements in financial conditions and stronger domestic demand growth in many emerging-market economies. While the outlook for global growth through 2010 and 2011 is somewhat stronger than the Bank had projected in its October Monetary Policy Report, the recovery continues to depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months. Nevertheless, considerable excess supply remains, and the Bank judges that the economy was operating about 3 ¼ per cent below its production capacity in the fourth quarter of 2009.

Canada's economic recovery is expected to evolve largely as anticipated in the October MPR, with the economy returning to full capacity and inflation to the 2 per cent target in the third quarter of 2011. The Bank projects that the economy will grow by 2.9 per cent in 2010 and 3.5 per cent in 2011, after contracting by 2.5 per cent in 2009.

The factors shaping the recovery are largely unchanged - policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada. On balance, these factors have shifted the composition of aggregate demand towards growth in domestic demand and away from net exports. The private sector should become the sole driver of domestic demand growth in 2011.

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. Consistent with this conditional commitment, the Bank will continue to conduct term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule: http://www.bankofcanada.ca/en/notices_fmd/2010/notice_fad190110.pdf

In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April 2009 MPR.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Information note:

A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 21 January 2010. The next scheduled date for announcing the overnight rate target is 2 March 2010.

Bank of Canada Governor Mark Carney is entering a crucial phase for clinching the recovery.

[Source -Jeremy Torobin Ottawa — From Monday's Globe and Mail]

Having helped steer Canada's economy out of recession, Mr. Carney and policy makers across the globe are carefully watching for signs that their economies are healing and trying to determine the right moment, and the right pace, at which to start withdrawing the unprecedented stimulus that helped counter the effects of the financial data.

While few believe there's much chance Mr. Carney will abandon his “conditional” commitment to keep borrowing costs at a record-low 0.25 per cent through the middle of the year or longer, every piece of data over the next few months will be parsed for indications of how quickly rates might rise in the second half of the year and beyond.

Timing is particularly important because no central banker wants a repeat of 1937, when the U.S. Federal Reserve tightened prematurely, snuffing out a tentative recovery and thus prolonging and worsening the Great Depression.

No economist believes the central bank chief is going to adjust borrowing costs Tuesday, and few contend he should be rushing to so much as tweak the wording of the pledge to leave rates where they are unless the inflation outlook changes.

But six months before a July decision which could mark the first rate hike since the crisis, a quarterly economic and inflation forecast this Thursday may offer clues about whether Mr. Carney thinks the recent rebound is here to stay, and how quickly the economy might return to something resembling pre-recession form.

And data on consumer prices this week from Statistics Canada could suggest whether there's any possibility he will need to shorten or extend his holding pattern, the length of which depends on how soon he sees inflation returning to his 2-per-cent target.

Housing bubble talk premature: Bank Of Canada

Great article on current status of Canadian Housing Sector

[Source - THE CANADIAN PRESS]

The Bank of Canada appears to be cooling its rhetoric on the country’s housing boom, all but ruling out raising interest rates to dissuade prospective home buyers from taking on too much mortgage debt.

Bank official David Wolf said in a speech Monday that in the central bank’s view it is premature to be talking about a housing bubble in Canada.

And he said even if the bank judged that housing prices were getting out of hand, raising interest rates is too blunt an instrument since it would have the effect of cooling off the entire economy.

“We would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession,” he said in an Edmonton speech delivered on behalf of deputy governor Timothy Lane, who could not travel to the Alberta capital for personal reasons. Notes from the speech were posted on the bank’s website.

“As a result, it would take longer for economic growth to return to potential and for inflation to get back to target,” he added.

“This is why we say monetary policy is a blunt instrument for achieving financial stability.”

Wolf, a former chief economist with Merrill Lynch Canada who is currently adviser to governor Mark Carney, said there were other ways to dampen Canadians’ enthusiasm for homes without resorting to raising interest rates.

Finance Minister Jim Flaherty has also openly discussed policy measures to cool the housing market, including raising the minimum down payment requirement above 5%, or reducing the maximum length a house can be amortized from the current 35 years.

The bank has been highlighting for months the danger of Canadians getting in over their heads in purchasing homes, warning that buyers should ensure they don’t take on too much debt.

The bank’s worry is that homeowners with large mortgages that are manageable now with interest rates at record lows won’t be able to afford their monthly payments once interest rates start rising, as is expected later this year.

Read Full Article Here

Dominion Lending Centres Mortgage Industry News Highlights

Dominion Lending Centres Mortgage Industry News Highlights - December 16th, 2009

National home sales increased by 73% in November from the trough seen a year ago, with Ontario and Quebec hitting new monthly records as buyers took advantage of record low interest rates to secure mortgages.

The national average price gained 19% compared to November 2008, at $337,231, CREA said. Since the beginning of the year, prices have gained 4.4% compared to the same time last year.

“The year-over-year increase in November continues to reflect the high degree to which the average was skewed downward last year by plummeting activity in Canada’s priciest markets, and then upward by rebounding activity,” the association said.

CREA tracked 36,383 deals on its Multiple Listing Service in November. Crediting the housing market for leading “the overall Canadian economy out of the recession,” association President Dale Ripplinger said the numbers were a sign of an entrenched recovery. “National home sales activity last month shows how strongly the housing market has rebounded since the beginning of the year.”

Click here to view the full CREA release.

Canada’s real estate market is finding its balance.
A surge in new listings in November helped ease a chronic supply shortage and temper prices from a month earlier, easing fears of a bubble in the making even though the rebound in the market continued unabated.

That’s what economists were looking for because a steady string of monthly price increases could inflate an asset bubble and lead to a severe correction when interest rates eventually rise.

For the past several months, prices have been rising month-over-month, with double-digit percentage increases posted year-over-year.

Listings in November increased by 5% compared with October, the largest one-month gain in two years, CREA said Tuesday. The increase is a sign of consumer confidence, and signals a return to normalcy in what has been an extremely volatile market.

More inventory ultimately means lower prices. The average national price in November declined by 1.1% from October to $337,231, although that was still up sharply from the depressed levels seen 12 months ago.

Prices for new homes in Canada rose 0.3% in October after a 0.5% increase the previous month, Statistics Canada said Friday.

It was the fourth straight monthly gain in the federal agency’s new-home price index, although the increase was slightly below the 0.4% many economists had expected.

The biggest price increase was in Quebec City, up 1.1%, followed by Vancouver, up 0.7%.

As the Canadian real estate market continues to rebound from a steep decline a year ago brought on by the recession, homebuyers remain nervous about the stability of the economy, according to a survey of 1,225 Royal LePage agents and brokers across Canada. But few buyers think home prices will decline again.

When asked to comment on the most common fears they are hearing from homebuyers over the past three months, 38% of Royal LePage agents and brokers cited economic stability and related factors such as job security. Some 23% said homebuyers fear they may not be able to sell their existing homes at the price they are hoping for, while 12% said buyers are hesitant because they believe prices have not yet hit the bottom of the cycle. Twenty percent of agents and brokers said they are not hearing any concerns from buyers.

The Royal LePage Advisor Survey, conducted online in November, also found that an increasing number of Canadians are purchasing homes as investment properties, and almost 50% of brokers and agents say the number of buyers intending to renovate their properties after purchase is increasing.

“Given the volatility in the real estate markets over the past 18 months, it is not surprising that the state of the economy continues to weigh on the minds of Canadians as they consider buying a home,” said Phil Soper, President and Chief Executive, Royal LePage. “Canadian real estate markets are enjoying a strong recovery as 2009 draws to a close and appear poised for healthy growth in 2010. Our survey shows that consumer confidence is edging towards normal levels. Canadians clearly believe that the worst of the recession is behind them and that the real estate market is on the path to sustainable recovery.”

Click here to view the full Royal LePage release.

A new report from Statistics Canada carries a sober message: collectively, Canadians are deeper in debt than ever before.

But economists say record-low interest rates mean that debt loads are still manageable and will likely improve as the economy begins to recover from the recession.

The StatsCan report, issued Monday, comes on the heels of a stern warning about rising debt issued last week by the Bank of Canada.

Surging stock markets pushed up Canadians’ net worth in the third quarter, StatsCan said. The S&P/TSX Composite Index rose 9.8% in the third quarter. That’s on top of a 19% gain in the previous three months.

Household net worth, the value of families’ assets such as cars, homes, savings accounts and investments, minus what they owe, reached $5.72 trillion at the end of September. That’s an increase of 2.3%, marking two quarters of gains after three consecutive drops.

But household debt, mainly mortgages and consumer credit, rose from July to September as Canadians rushed to take advantage of low interest rates. Personal sector liabilities rose to $1.41 trillion, up 1.6%.

Click here to read the full article in The Star.

Bond yields and mortgage rates could head higher before the Bank of Canada’s pledge to hold interest rates steady expires in July, the Chief Economist at Bank of Nova Scotia said last week.

“There’s a very good chance long-term rates will head up before then,” Warren Jestin said in Toronto at a briefing sponsored by the Investment Funds Institute of Canada.

He warned new homeowners with variable-rate mortgages not to be influenced by the central bank’s neutral statements on rates last Tuesday. The bank has pledged to hold rates at a historic low of 0.25% until the end of the second quarter of next year, inflation conditions permitting.

Read the “fine print” and he believes it’s likely three-year and five-year mortgage rates will be higher before July 2010.

Click here to read the full Financial Post article.

The Royal Bank says Canadians can expect to be hit by higher interest rates in the second half of next year and in 2011.

Royal Bank economists say the Bank of Canada will be among the next group of central banks to move off floor-low rates, with the Canadian bank’s overnight rate finishing 2010 at 1.25%. And RBC economists say they believe the trend-setting rate could rise to as much as 3.5% in 2011.

The bank rate has been at 0.25 for most of 2009, a rate that is encouraging borrowing but also raising concerns that Canadians may be overextending themselves.

The Royal Bank says Canada has not suffered as badly as other economies in the recession, and will be among the first, after Australia and Norway, to start raising rates.

Click here to read the full article in The Star.

Mark Carney is urging prudence among Canadians who are borrowing at super-cheap rates today but may not be able to afford higher payments tomorrow.

Household debt is now the biggest risk to the financial system, even if it is not expected to climb to levels that could cripple bank balance sheets, the central bank said last Thursday in its review of the financial system. It used a “stress test” to show that rising interest rates between mid-2010 and mid-2012 would saddle a growing number of Canadians with unmanageable debt loads.

Carney, the Bank of Canada’s Governor, who has guided monetary policy throughout the crisis, is relying on consumers to help drive a recovery juiced by his historically low interest rates. Yet he is also warning borrowers and lenders not to go overboard and to think about the consequences of hefty debt in an inevitable environment of rising rates.

The semi-annual report marked the first time the bank has analyzed the risks based on interest rates reaching specific levels.

Click here to read the full article in the Globe and Mail.

Your first-time buyer clients have a chance to win one of two gift cards from Sears worth $250 apiece by filling out the following survey by January 10th for Buying Your First Home magazine (a consumer publication owned by CMP parent company, KMI Publishing & Events Ltd): http://yourfirsthomecanada.ca

The survey targets readers of the publication, but the magazine is also interested in hearing from those who haven’t read it, but are planning to buy their first home.

Bank of Canada maintains overnight rate target at 1/4

True to his word Mark Carney and the Bank of Canada have not raised the overnight lending rate, and still maintain it will not increase until the middle if 2010.

Although consumers in Canada have been spending, propping up our economy, economists speculate that this will only last for a few quarters. What they would like to see is our trading partner's economies to get better so that Canadian exports increase, which would have a much more lasting and better effect on our overall economy.

One area consumers are spending is housing.

"Canadians are responding to the central bank's price signal and rushing to buy homes at what many see once-in-a-lifetime mortgage rates." Globe and Mail.

Bank Of Canada Press Release December 8, 2009

Bank of Canada kills talk of early rate hike

Variable Rate holders will be happy with the Bank of Canada's decision today to stand by what they had previously said and indicated and not raise the overnight lending rate. Despite some people speculating that they would follow Australia's lead, the BoC did not raise the rate and this also helped to cool off the raising CAD dollar.

For a full story on today's decision - see Reuters News

[Source - Reuters]

OTTAWA (Reuters) - The Bank of Canada extinguished speculation on Tuesday that it would follow Australia in hiking interest rates quickly, warning that favorable economic developments were being undermined by the strength of the Canadian dollar.

The bank kept its key overnight interest rate at a very low 0.25 percent and reiterated its intention to keep it there through mid-2010.

Far from giving any suggestion of an early exit from its extended low-rate strategy, which is designed to stimulate the economy, the bank said return to economic normalcy would be delayed. Full Story Here

Bank of Canada maintains overnight rate target at 1/4 per cent

[Source - Bank of Canada]
OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The global economy has suffered an intense, synchronous recession and considerable excess supply has opened up. There are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial system. However, the recovery is nascent. Effective and resolute policy implementation remains critical to sustained global growth.

The dynamics of the recovery in Canada remain broadly consistent with the Bank's medium-term outlook in its April Monetary Policy Report (MPR). Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth. However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.

Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period relative to the April MPR. The Bank projects that the economy will contract by 2.3 per cent in 2009 and then grow by 3.0 per cent in 2010 and 3.5 per cent in 2011, reaching production capacity in the middle of 2011.

Total CPI inflation declined to -0.3 per cent in June and should trough in the third quarter of this year before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance. Core inflation held up at 1.9 per cent in the second quarter of 2009. The Bank still expects core inflation to diminish in the second half of this year before gradually returning to 2 per cent in the second quarter of 2011.

While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

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. Consistent with this conditional commitment, the Bank will continue to conduct longer-term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule.

The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR.

Information note:
A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 23 July 2009. The next scheduled date for announcing the overnight rate target is 10 September 2009.

Bank of Canada cuts interest rate to its lowest level ever

Bank of Canada lowers overnight rate target by 1/4 percentage point to 1/4 per cent and, conditional on the inflation outlook, commits to hold current policy rate until the end of the second quarter of 2010.

April 21, 2009 Bank of Canada Press Release

Bank of Montreal was first to follow lowering it's prime rate to 2.25%

Royal Bank has also passed on savings by lowering prime to 2.25%

The other majors are expected to lower their prime to match.

Great news for variable rate mortgage holders, enjoy the low rates before they start climbing up, is there really any other way for them to go at this point? The question is when that will occur and how fast will they move. I cant imagine that will happen any time soon and Bank fo Canada signals it wont happen until some time next year.