Bank of Canada Maintains Overnight Rate Target at 1%

Date: October 23rd, 2012

Ottawa, Ontario – 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 economy has unfolded broadly as the Bank projected in its July Monetary Policy Report (MPR). The economic expansion in the United States is progressing at a gradual pace. Europe is in recession and recent indicators point to a continued contraction. In China and other major emerging economies, growth has slowed somewhat more than expected, though there are signs of stabilization around current growth rates. Notwithstanding the slowdown in global economic activity, prices for oil and other commodities produced in Canada have, on average, increased in recent months. Global financial conditions have improved, supported by aggressive policy actions of major central banks, but sentiment remains fragile.

In Canada, while global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion. Following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013. The Bank continues to project that the expansion will be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions. Housing activity is expected to decline from historically high levels, while the household debt burden is expected to rise further before stabilizing by the end of the projection horizon. Canadian exports are projected to pick up gradually but remain below their pre-recession peak until the first half of 2014, reflecting weak foreign demand and ongoing competitiveness challenges. These challenges include the persistent strength of the Canadian dollar, which is being influenced by safe haven flows and spillovers from global monetary policy.

After taking into account revisions to the National Accounts, the Bank projects that the economy will grow by 2.2 per cent in 2012, 2.3 per cent in 2013 and 2.4 per cent in 2014.

Core inflation has been lower than expected in recent months, reflecting somewhat softer prices across a wide range of goods and services. Core inflation is expected to increase gradually over coming quarters, reaching 2 per cent by the middle of 2013 as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well-anchored. Total CPI inflation has fallen noticeably below the 2 per cent target, as expected, and is projected to return to target by the end of 2013, somewhat later than previously anticipated.

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.

The next Bank of Canada meeting is December 4 2012.

BoC Retreats From Rosy Forecast, Keeps Rates Steady

Date: July 17th, 2012

By Julian Beltrame, The Canadian Press

OTTAWA – Low borrowing costs will remain for awhile longer after The Bank of Canada moved Tuesday to keep interest rates low, noting the economic recovery is being blown slightly off course by a perfect storm of global turbulence that is affecting all major economies.

But in a statement that was not as dovish as some anticipated, the central bank gave no comfort to those looking for the next move to be an interest rate cut, rather than an increase.

As expected, the central bank kept its benchmark policy setting at one per cent until at least the next policy meeting in September, but tellingly also maintained its bias toward tightening monetary policy in the future.

The forward-looking bias is a bit of a surprise given that the bank ratcheted down its forecast for the economy from the relatively rosy 2.4 per cent growth rate in 2012 and 2013 to 2.1 per cent and 2.3 per cent for the two years, respectively.

More aggressive expansion now won’t come until 2014 when the economy is forecast to grow by 2.5 per cent.

And the economy won’t return to full capacity until the second half of 2013, about six months later than the bank monetary policy panel, which is led by governor Mark Carney, thought in April.

Still on future policy action, it repeated the mantra of April.

“To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

CIBC chief economist Avery Shenfeld said that was a slap in the face to markets, which had been looking for a more dovish signal from Carney.

“The market is now pricing in a rate cut as the next move by the Bank of Canada, and Carney’s team is saying that’s unlikely,” he said.

“(The bank) is delaying a resumption of the kind of growth rates needed to get us back to full employment, but not giving up on the idea that that is coming in a year or so. This forecast could easily involve a rate hike early in 2013, but that’s going to depend very much, as the bank knows, on what policy-makers in the U.S. and Europe actually do.”

The new projections put the central bank closer in line with the private sector economist consensus and virtually on the same page as the International Monetary Fund’s call on Monday for 2.1 per cent and 2.2 per cent growth in 2012 and 2013.

“While global headwinds are restraining Canadian economic activity, domestic factors are expected to support moderate growth in Canada,” Carney and his policy panel said in statement.

“Consumption and business investment are expected to be the primary drivers of growth, reflecting very stimulative domestic financial conditions (interest rates).”

However, they note that the global slowdown is restraining exports and pushing down commodity prices, sapping Canadian incomes and wealth. Meanwhile, record-high household debt is restraining spending, housing activity is expected to slow from record levels, and governments have taken themselves out of the stimulus game with austerity budgets.

The interest rate announcement was pretty much anticipated by private sector economists. It now means the bank will have kept the benchmark setting at one per cent two full years, and if analysts are correct, it probably will do so for a third.

“The maintenance of the tightening bias is likely a signal to one and all that the bank has absolutely no intention of following the easing lead of many other central banks, but at the same time they are highly unlikely to act on that bias anytime soon,” said Doug Porter of the Bank of Montreal.

“After all, in the current global economic climate, restraint is the better part of valour.”

Across the board, the bank says, conditions are worse than they were a few short months ago.

The United States recovery continues but it is weaker, it noted.

In Washington on Tuesday, Federal Reserve chairman Ben Bernanke said the Fed is prepared to take further action to support the economy, but didn’t spell out how or when.

In China and other emerging economies, the deceleration of growth has been greater. Developments in Europe now point to a renewed contraction.

“This slowdown in global activity has led to a sizable reduction in commodity prices,” which hits Canada’s resource sector, particularly oil exports, the bank said.

“Global financial conditions have also deteriorated since April, with periods of considerable volatility,” it adds.

Finally it issues a warning: “The bank’s base-case projection assumes that the European crisis will continue to be contained, although this assumption is subject to downside risks.”

The bank does not say what will happen if Europe’s debt crisis leads to a financial system collapse, as happened in the fall of 2008, but the IMF on Monday pronounced such an outcome as catastrophic and capable of sending the global economy back into recession.

The Bank of Canada will meet next on September 5th.

What Does a Million Dollars Buy You In Canada?

Date: June 6th, 2012

A million dollars used to sound like a lot of money. With housing prices rising steadily for the last decade in Canada, a million dollars doesn’t seem to go as far in some markets. We take a look at what $1,000,000 will buy you in several major cities across Canada.


A million dollar Vancouver Home
Click Image For Interior Pictures
Price: $999,999
Bed: 5
Bath: 3
Sq. Footage: 2373
Lot Size: 33.0 x 120



A million dollar Calgary Home
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Price: $999,990
Bed: 3+1
Bath: 3+1
Sq. Footage: 2257
Lot Size: 32 x 150



A million dollar Saskatoon Home
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Price: $990,000
Bed: 4
Bath: 2+1
Sq. Footage: 2612
Lot Size: 10 acres



A million dollar Winnipeg Home
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Price: $989,900
Bed: 3
Bath: 3
Sq. Footage: 2705
Lot Size: 85 x 180



A million dollar Toronto Home
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Price: $999,000
Bed: 3
Bath: 2
Sq. Footage: 1750-2250
Lot Size: 21 x 63



A million dollar Montreal Home
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Price: $999,999
Bed: 5+2
Bath: 4
Sq. Footage: 2000
Lot Size: 45 x irregular



A million dollar Moncton Home
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Price: $997,000
Bed: 3+2
Bath: 4
Sq. Footage: 3589
Lot Size: 1 acre



A million dollar Charlottetown Home
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Price: $998,700
Bed: 8
Bath: 9+2
Sq. Footage: 5200
Lot Size: 100 x 150



A million dollar Halifax Home
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Price: $949,900
Bed: 4+1
Bath: 3+1
Sq. Footage: 4460
Lot Size: 55 x 130


St Johns

A million dollar St Johns Home
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Price: $929,900
Bed: 3
Bath: 3
Sq. Footage: 2700
Lot Size: 50 x 50


Bank of Canada Remains Neutral on Rates

Date: June 5th, 2012

CBC News

Canada’s central bank is keeping its benchmark interest rate steady at one per cent — the same level since September 2010.

The Bank of Canada said Tuesday it would hold its target for the overnight rate steady in its latest policy decision.

The bank has decided not to raise or lower the rate on which other banks base many of their interest rates for 14 consecutive six-week policy meetings, dating back to fall 2010. That’s the longest that Canada’s central bank has stayed on the sidelines since the 1950s.

“Underlying economic momentum appears largely consistent with expectations,” the bank said in its statement accompanying the decision.

“To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate,” the bank said.

That was a slightly different tone that the previous statement, suggesting if and when the bank makes a move, it’s more likely to be a hike to curb lending, not a cut to stimulate the economy.

“The message is that the bank, unlike the market, still expects the next move to be a hike, but it is acknowledging that there is less certainty about the economy being strong enough to warrant that move,” CIBC economist Avery Shenfeld said in a note following the bank’s rate announcement.

Modest growth

Scotiabank economist Derek Holt said Bank of Canada Governor Mark Carney had no choice but to hold off. The bank governor did not completely reverse course, but that may be forthcoming in the next statement in July, Holt said.

“In a perfect world the bank would be raising rates right now,” he said. “But the geopolitical turn of events and as well as the domestic softens in sectors outside of housing won’t allow them to do so.”

Canada’s central bank says the U.S. economy has continued to expand at a modest pace, but activity in emerging markets has slowed a bit faster than expected, and Europe remains a major concern.

In Canada, the first-quarter growth rate was disappointing at 1.9 per cent, but the economy is holding up overall because of a strong housing sector, positive business, and consumer confidence and low interest rates.

The bank also said inflation remains in control and not a worry at this time. The bank has its next scheduled decision on rates on July 17.

Understanding Consumer Household Debt

Date: May 18th, 2012

By Rubina Ahmed-Haq

After years of hearing how Canadian consumer household debt is spiralling out of control the message seems to be getting through.

A recent report on consumer credit by CIBC finds consumer debt in Canada declined in March 2012. It also found overall consumer debt levels are rising at the slowest pace since 1993. Even better news, fewer Canadians are behind on their mortgage payments. The mortgage arrears rate tracks those behind on their mortgage payments. It’s falling, and is currently at a rate of 0.4 per cent down from 0.5 per cent during the recession.

“Soft credit card activity is largely behind the softening in overall growth in consumer credit,” says CIBC economist Benjamin Tal. He adds in a recent report, “for the first time in more than a decade, consumer credit in Canada is rising more slowly then in the U.S.”

Lawrence Kobescak of Ontario Mortgage Superstore says new borrowing rules are also helping Canadians, “CMHC in 2011 reduced the maximum a borrower can refinance their home to 85% LTV.  Lines of Credit are capped at 80% LTV.  Both of these moves will help protect CMHC from default in the event the housing market collapses,” he says.

This change in attitude is only the first step. Canadian household debt levels still remain at near record highs at 151 percent. This means Canadian owe $1.51 for every dollar they earn.  But does this mean Canadians household debt is out of control? And how does your debt fit into the overall consumer debt picture.

There are many ways to measure debt here are some commonly used ratios.

Monthly debt to income ratio

These are your fixed monthly cost compared to your monthly income.

Debt to income ratio

This is the calculation Statistics Canada uses to come up with that scary 151 per cent figure. It’s your total debts compared to your total household earnings after taxes

Debt to asset ratio

This is all your debt outstanding compared to your assets.

Lawrence Kobescak says regardless of what ratio you use you have to put your debt into perspective. “While the concern by the Bank of Canada over the debt to household income rising to over 151% is warranted, I feel it is misdirected. While borrowers are restricted from taking too much equity out of their homes nothing is stopping the banks and credit card companies from issuing excessive amounts of unsecured debt.”

It is this high interest debt that can affect person’s finances. “While CMHC’s changes may avoid a CMHC default, it is doing nothing to stop Canadians from getting in over their heads. I find most clients looking to refinance are trying to consolidate existing high interest debt rather then to take equity out to do additional spending.”

The message from the Bank of Canada is Canadians should prepare themselves for higher interest rates in the months to come. Consumer debt can stay under control by borrowing intelligently and having a plan to pay it off. If the CIBC report is a true reflection of Canadian attitudes then the country is already heeding that message.