Bank of Canada capitulates: cuts outlook, loonie tanks
So the Bank of Canada lowered interest rates this morning. Canada is another Country that is showing negative growth and continues to lower interest rates to near zero. With the 25 point rate drop today the Bank Rate now stands at 3/4 per cent and the deposit rate at 1/4 per cent.
All the central banks continue to follow the same playbook leading us all down one road… Here is the report from the Bank of Canada.
The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.
Global growth faltered in early 2015, principally in the United States and China. Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity. Global growth is expected to strengthen over the second half of 2015, averaging about 3 per cent for the year, and accelerate to around 3 1/2 per cent in 2016 and 2017.
The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities. Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.
The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost. Recent evidence suggests a pickup in activity and rising capacity pressures among manufacturers, particularly those exporters that are most sensitive to movements in the Canadian dollar. Financial conditions for households and businesses remain very stimulative.
The Bank now projects Canada’s real GDP will grow by just over 1 per cent in 2015 and about 2 1/2 per cent in 2016 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.
The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.
Information note:
The next scheduled date for announcing the overnight rate target is 9 September 2015. The next 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 October 2015.
I always take ZeroHedge articles with a gain of salt. They take facts and jump to some extreme conclusions that do not always pan out.
BUT, SOME DO….WORK OUT………..do your own dd………. 🙂
or I should say……..one needs to do their own dd….. 🙂
I found them to be spot on concerning the Greek mess………jmho
Cory: Well said on Zero Hedge articles. I always glance at their headlines and then go to various other sites. They are usually spouting something dire and it’s almost never as bad as they posted. They’re in the same category as Drudge, IMHO.
Lower discount rates won’t translate into lower mortgage rates. Should housing prices decline, mortgage rates will advance along with the decline in housing prices, as they had in the States.
There is NO WAY this will inflame an already egregious housing price bubble
You are wrong TD made a simultaneous announcement that they are cutting their prime rate by 0.1. Mortgages will go down. That is the point of the cut is to get people borrowing an spending.
You are right Peter, TD came out right after the announcement and cut by only 10 points. In the short term it could further boost home prices. The scary time comes when rates start to rise but I don;t see this happening anytime soon.
Fixed mortgages are unchanged. Variable rate mortgages are subject to change. That’s why.
Anybody in a fixed is crazy.
I stand by the assumption that lower discount rates won’t translate into lower mortgage rates. In fact people with exposure to housing prices will be paying the bank for the drop in housing prices that reflect on a deterioration in the economy that is represented by rate cuts. If you have a fixed mortgage, you pay up front. If you have a variable rate, then you gamble on rates going down. As I’ve said, lower discount rates do not necessarily translate into higher housing prices.
Following Getting Technicals’ chart has provided assistance on tracking the sale prices of homes in Toronto. If a house is flippable, then it gets sold multiple times for higher prices each time, regardless of quality, and this is the core of the housing bubble in Canada.(not foreign investors as people presume)
There is no basis whatsoever for establishing higher house prices on lower rates on treasury bills.
Getting Technical chart:
http://www.gettingtechnical.com/01_home/market_commentary/can_en.html
Lower rates only means there is no business………..
Manitoba…..Canada…….town in trouble with budget and jobs are leaving…zerohedge yesterday.
Housing glut in Toronto………..one month ago…zerohedge.
No doubt that the housing markets in Toronto and Vancouver are booming… and have been for some time now.
Booming because foreign investors (i.e. Chinese) are pilling in. I don’t think your average Canadian can afford a Vancouver house on the salary he makes.
I agree Chinese investors are buying up properties but there are many Canadians and young families that can get access to low rate mortgages and still want to live in the city. With rents so high people are taking on debt to buy houses. I have been following the markets closely for some time and to say it is only the Chinese that are buying is not the case… They are pushing locals out of certain areas though (i.e. further east into East Van neighborhoods).
And the is the problem, pushing locals out of certain areas. Why should a foreign investor be given the power to bid up local property and make it harder for Canadian families to afford a place? Especially foreign investors who don’t live in the house all year round.
Agree. We have a dilemma , leave cash at 0 interest or speculate in housing market. We really have no choice. I don’t think housing can crash if BOC keeps rate so low. They have no choice either. They need to canadian dollar low to rescue the export economy. We don’t print world reserve currency.
I hope prices will eventually crash to get closer to real values.
TWO DIFFERENT MARKET……………
(S)
LOCATION , LOCATION, LOCATION………..
Canada will raise rates again, and it won’t be long. N America is about to get a very big boost in it’s economy.
From what?
A new financial structure. That’s what!
I like Brad Thor as an author and have read all his books except his most recent.
He is interviewed on the
Glenn Beck program at:
https://soundcloud.com/glennbeck/beck-blitz-interview-with-brad-thor
He expresses my feelings about the Iranian treaty insanity.
GREECE FOLDED…………….good luck .
Feel sympathetic to Germans. I am sure they set a tough conditions just to make Greece to reject and get out of euro. Now they have to come up with the money. It appears to be a bottomless pit. German can not afford PIGS. It might Germany eventually exit Euro.
EVERYONE needs to EXIT EUro………it is just a big con game for the Banksters/power brokers………Power hungry money grubbers.
Americans need to KICK OUT THE FED CON MEN………..
IF everyone would just declare a JUBILEE……it would be OVER………
I guess putting your money into Loonies and gold to avoid the collapse of the USD like many of the guests on this program have suggested worked out real well!
Thanks for the advice on what not to do.
Gold at $750 by 2016!
I’ll purchase loonies with American dollars when the loonie hits about $.61 and gold will not see $750.00 in 2016.
This does not sound contrarian. It has been down. This is more populous opinion.
Clear prof of insanity:
The way to solve inability to pay debt is to increase the debt.
Or it could simply be that all politicians are corrupt and never put their country and its citizens first.
Gold held in:
CDN $ up 8.3% YTD
AUD up 7.6% YTD
EUR up 7.3% YTD
Thanks for coming out,GCS,
I am Canadian. I am not against loonie devaluation considering our economy. Canadian supplies real goods not vapour. When this hostile environment goes away, the world will still need our products as long as our industry survives. Gold has been a good holding in Cnd$ terms.
You can say with a sense of irony that Canadians are sitting one one the greatest vapourware bubbles in history with a TAXPAYER supported derivatives bubble blown by the bond swapping programme that banks have relied on since the Lehman bankruptcy. Thus the housing price bubble of extreme proportions.
Yes sad but true. Hope we return to normal. Financial industry is killing us. It relies on bubble and all the other industry is kidnapped.
I machine parts here in Canada . We are the busiest we have been since 9/11 with the falling loonies….I love it.
NEWS…………SANTA CRUZ, CALIFORNIA……..says and voted not to do business with TBTF………zerohedge. Bankers beware,time is up.