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Interest Rate update

Here is a e-mail that Tracy Turnell mortgage broker sent to me .Know it is always a difficult decision as to what to so when taking out a mortgage or renewing a mortgage. From this article it looks like the low rates have hit bottom & are starting to nose upwards. If they raise prime a full .5% on July 1 2010 that is a big jump & for a lot of people holding mortgages it is headed in the wrong direction.
 
   
     
     
 
  Markets primed for Canada rate hike on June 1
Fri May 28, 2010 9:55am EDT

WHEN: Tuesday, June 1 at 9 a.m. (1300 GMT)

FORECASTS: Thirty-two of 40 forecasters polled by Reuters expected the Bank of Canada to raise rates by 25 basis points on June 1 to 0.50 percent. Canada's 12 primary securities dealers were unanimous in that view.  Eight of 40 saw rates staying on hold next week.  The poll was conducted between May 24 and May 27. 

Yields on overnight index swaps, which trade based on expectations for the key central bank rate, suggested investors see a 77 percent chance the policy rate will rise to around 0.50 percent on June 1. 

FACTORS TO WATCH:

What the bank has said: At its last rate announcement on April 20 the bank removed its conditional commitment to hold rates at an emergency level of 0.25 percent until the end of June, opening the possibility of a hike at the earliest opportunity. A rate hike on June 1 would make Canada the first of the G7 industrialized economies to raise borrowing costs following the financial crisis and recession.

The bank also said it was "appropriate to begin to lessen the degree of monetary stimulus", but suggested the timing and extent of that process would depend on incoming economic data.

Bank of Canada Governor Mark Carney said on April 29 high sovereign debt levels, the strong Canadian dollar and a poor productivity performance could be problems for the Canadian economy, affect the inflation outlook and therefore influence monetary policy.

The data: Most of the news since the last rate decision has been upbeat, suggesting the central bank has little cover for holding rates until July without fear of an overheated economy months from now.

Job gains were at a record high and inflation topped expectations in April. Retail sales in March surged past expectations as well. At the same time there have been signs the frothy housing market  is stabilizing, soothing fears that a rate hike would leave many homeowners with unsustainable debt levels.

Global outlook: Beyond Canada's borders, the picture looks slightly less rosy, with potentially noxious effects on Canada's exports and economic growth. However, the recovery in the United States, Canada's main trade partner, appears to solid enough to withstand the euro zone debt crisis even though the United States has a higher jobless rate than Canada does, analysts say.

The Canadian dollar has been buffeted by the market angst over the Greek debt crisis and uncertainty about other euro zone countries, which could give Bank of Canada Governor Mark Carney pause. The currency fell to a seven-month low against the U.S. dollar this week on the debt woes but investors' risk appetite has improved somewhat since and the currency regained some lost ground.

On the other hand, analysts point out that Carney repeatedly and adamantly stresses the bank's single-minded focus on the inflation outlook, which trumps market conditions if all else is equal.

A report by the Organization for Economic Cooperation and Development on Wednesday said the central bank should start "normalizing its policy rate without delay and tighten gradually throughout the projection period".

MARKET IMPACT:

Expectations that the bank will hike rates on June 1 was already helping boost the Canadian dollar, which climbed to a one-week high early Friday. The currency could strengthen further if the predictions materialize.

A surprise decision to leave rates on hold would likely bump down the Canadian dollar and cause bond yields to fall as investors try to second-guess the reason for the bank's caution. (Reporting by Louise Egan )
 
 
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