As I predicted, Bank of Canada cuts rate by 0.25%. Says it is as low as it can go. "The target rate for overnight loans
between commercial banks was reduced to 0.25 percent today, the lowest
since the central bank was founded in 1934 and the lowest it can go,
the bank said. Policy makers also kept the rate on overnight deposits
from commercial banks at 0.25 percent, instead of the usual practice
that would have reduced it to zero."
Prime Drops to 2.25%
Each of Bank of Montreal, Royal Bank of Canada, CIBC, TD and Scotiabank
had moved to lower their prime rates - or what they charge their best
customers - by 25 basis points, to 2.25%, effective Wednesday.
NOT TIME TO LOCK-IN YET BUT CLOSE
The surprising comments to me were that they may keep it this low until mid 2010.
While not directly correlated, fixed rates are influenced so there
should be more downward pressure on them. At this point I'm suspecting
we will see fixed rates at this level for a while still and that it is
not yet time to refinance if your goal is to catch the bottom. However
wherever they get to in the next month or two will likely be the bottom
so waiting longer just costs you more by continuing to pay a higher
rate.
Further Reading
Read these articles on my blog.
Bank of Canada Announcement: 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
from Bloomberg... Canada’s economy will shrink by 3 percent this year, the central bank
said, revising a January prediction of a 1.2 percent contraction. Next
year, output will expand by 2.5 percent, instead of the earlier
forecast of 3.8 percent. The bank said inflation will turn negative and
reach a low point of minus 0.8 percent in the third quarter of this
year.
“I have never seen the bank so easy-going about its mandate -- it’s
quite something,” said Sebastien Lavoie, an economist with Laurentian
Bank Securities in Montreal and a former Bank of Canada economist. Full Article
from the Globe and Mail... In January, Bank of Canada Governor Mark Carney
was counting on multibillion-dollar stimulus programs pledged by
governments in the Group of 20 major economies to reverse the effects
of the financial crisis by the third quarter of this year. Those
policies are taking longer roll out than policy makers anticipated, a
delay that's exacerbating the downturn.
“The global recession has intensified and become more synchronous since
the bank's January Monetary Policy Report Update with
weaker-than-expected activity in all major economies,” the statement
said. “While more aggressive monetary and fiscal policy actions are
under way across the G20, measures to stabilize the global financial
system have taken longer than expected to enact.” Full Article
from the National/Financial Post... Charmaine
Buskas, senior economics strategist at TD Securities, was among those
forecasting a rate cut, but she said the amount of detail in the
announcement caught market participants off guard.
"What did come as a surprise ... was the astonishing transparency by the Bank as it explicitly stated that rates will remain at this level until June, 2010. This level of transparency is unprecedented but it speaks to the dire state of the economy and a desire to control expectations." Full Article
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