Tuesday, January 29, 2013
Interest Rate Update
BCREA ECONOMICS NOW
Bank of Canada Interest Rate Announcement - January 23, 2013
It may be a new year but it is the same story this morning from the Bank of Canada which once again held its target for the overnight rate at 1 per cent. The statement released in support of the interest rate decision noted that the global economic outlook is weaker than the Bank previously projected, though risk of a severe external shock to the economy has diminished. As a result, the slowdown in the Canadian economy in the second half of 2012 was more pronounced than the Bank had anticipated. The Bank has revised its estimate for economic growth in 2012 lower, to 1.9 per cent, and now forecasts 2 per cent growth in 2013 before an acceleration to 2.7 per cent in 2014. Importantly, the Bank has also shifted its expectation that the economy will reach full capacity out to the second half of 2014. On inflation, the Bank expects growth in consumer prices to run significantly below its 2 per cent target for much of 2013 before gradually rising to target in 2014.
Following two years of overly optimistic forecasts, the Bank has struck a slightly more dour tone in its outlook. The gloomier growth forecast and positive signs that households are reigning in household debt have prompted the Bank to revise its language on the gradual withdrawal of monetary stimulus. In its concluding statement accompanying the rate decision, a key focus of monetary policy watchers over the past year, the Bank continued to note that a withdrawal of stimulus would likely be required over time, but that the timing of any such withdrawal is less imminent than previously anticipated. This strongly suggests that interest rates will remain constant at 1 per cent for all of 2013.
Thursday, June 7, 2012
Bank of Canada Interest Rate Hold - June 5 / 2012
Bank of Canada Interest Rate Decision - June 5, 2012
No surprises from the Bank of Canada’s interest rate decision this morning. The Bank opted to keep its overnight rate at 1 per cent, where it has been for nearly two years. The statement released in support of the interest rate decision noted that, in the Bank’s judgement, Canadian economic growth and inflation are unfolding largely as anticipated. A wave of risk aversion due to heightened anxiety over the Euro-crisis has sent Canadian bond-yields plummeting and market expectations for Bank of Canada rate increases have sharply reversed course. However, in today’s statement the Bank once again signaled to markets its preference for higher interest rates over the medium term and its intention to modestly withdraw stimulus as slack in the Canadian economy is absorbed.
The Bank also stated that any such withdrawal will be weighed against domestic and global economic developments. In its last interest rates announcement, the Bank suggested that the Euro-crisis had moved from an acute to chronic phase. While this turned out to be a misdiagnosis, it does suggest that the Euro-mess does not have to be completed resolved for the Bank to begin tightening policy, but it does need to be stable. At this point, with policymakers and politicians in Europe still struggling to put out a number of fires, it is difficult to see a clear path to a stable Europe in the coming months. Therefore, it is increasingly unlikely that the Bank will begin raising interest rates in late 2012, though it has certainly left that door open.
Friday, May 18, 2012
Potential interest rates rising in Fall
BCREA ECONOMICS NOW
Canadian Consumer Price Inflation - May 18, 2012
Canadian CPI inflation registered 2.0 per cent (year-over-year) in April, a 0.1 point increase from March inflation of 1.9 per cent. The rise in consumer prices was led by transportation costs, including a 3.3 per cent rise in gasoline prices. In fact, Statistics Canada's gasoline Index reached a 4 year high in April. The Bank of Canada's core inflation measure, which excludes food and energy prices, rose 2.1 per cent in April, up from 1.9 per cent in March. Consumer prices in BC were 1.6 per cent higher in April (year-over-year), matching the increase in March.
Today's CPI report, in combination with very strong Canadian employment growth in March and April, lends further support to the Bank of Canada's case for raising interest rates this fall. We anticipate at least one 25 basis point increase in the Bank of Canada's overnight rate between October and December this year. The one factor potentially delaying a rise in rates could be an increasingly likely Greek exit from the European Monetary Union. Such an event may roil financial markets enough to put BoC rate hikes off the table.
Friday, April 20, 2012
BCREA Mortgage News Update Apr/2012
What a difference a day makes
Published Apr 19, 2012
It is always wise, when gauging market expectations, to remember that the market reserves the right to change its mind and sometimes does so very quickly. To illustrate, here is a chart comparing market expectations of the probability of a 25 basis points change in the Bank of Canada overnight rate by the end of 2012 - observed before and after the latest Bank interest rate decision.
From this chart we can discern that the market believes it is three times more likely that the Bank will raise interest rates before the end of the year, than it did the day before the Banks’ announcement.
Of course, in terms of impact on the economy or the housing market, it is trivial whether the Bank of Canada decides to raise rates in December or waits a month or two longer. What is important is that the Bank is signalling that its preference is for higher interest rates relatively soon. That preference in turn should translate to an increase in long-term interest rates including mortgage rates, that is, unless something happens to change the markets mind.
Tuesday, November 1, 2011
Bank of Canada Interest Rate Announcement - October 25, 2011
As was universally anticipated, the Bank of Canada opted to hold its target overnight rate at 1 per cent this morning. Ongoing uncertainty in the Euro-zone continues to weigh heavily on the Bank's outlook. In its statement accompanying the interest rate decision, it was noted that the bank is now projecting a contained Euro-crisis, but also a brief recession in the Euro-area due to ongoing deleveraging and fiscal austerity. The Bank also expects continued weakness, but no recession, in the United States through the first half of 2012 before a resumption of stronger growth. Given various challenges in the global economy, the Bank of Canada trimmed its outlook for Canadian economic growth to 2.1 per cent in 2011, 1.9 per cent in 2012 and 2.9 per cent in 2013 which is in line with our own forecast. On inflation, the Bank now expects slack in the economy to persist longer than originally forecast, leading to a closing of the output gap at the end of 2013. This implies softer than expected inflation in coming quarters, with consumer price growth moderating before returning to the Bank's 2 per cent target by the end of 2013.
Overall, this morning's statement shows a very cautious Bank of Canada that is unlikely to make any significant movements on interest rates over the next two to three quarters. Further monetary tightening will be highly contingent on a brighter growth outlook in the United States and a credible solution to the Euro sovereign debt crisis. Therefore we expect the Bank of Canada to remain on the sidelines through the end of 2011 and the first half of 2012.
Tuesday, January 25, 2011
The Federal government has announced changes to mortgage financing requirements.
These are not anticipated to have a significant effect on the market.
There are three changes to the rules for government-backed insured mortgages:
1) Reduce the maximum mortgage amortization period from 35 to 30 years.
2) The maximum amount of the value of a home that can be re-financed will drop from 90 per cent to 85 per cent.
3) Government insurance will no longer be available to financial institutions wishing to insure home equity lines of credit.
The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.