No rate hikes until 2013: BMO

·· By Eric Lam, Financial Post

BMO Capital Markets pushed its rate hikes forecast back to 2013 on Tuesday, citing continued serious economic risks both home and abroad.

The new forecast pushes the expected time frame for the Bank of Canada to raise its benchmark interest rates back from previous expectations of the second half of 2012.

As recently as this spring, economists had been speculating about a rate hike before the end of 2011, but the market turmoil of the past few months sparked by the eurozone debt crisis has changed all that.

"As global economic risks have escalated, casting commodity prices and the Canadian dollar much weaker, the Bank of Canada's diminishing tightening bias has probably diminished further," Michael Gregory, senior economist with BMO Capital Markets, said in a report.

Mr. Gregory noted that the market has now actually swung all the way into cut territory pricing in two 25-basis point rate cuts by April 2012. But with inflation slightly below target, a weak loonie and credit markets still functioning, movement in either direction is unlikely.

"The policy easing bar remains high. Short of signs of imminent recession, the bank should remain on hold," he said.

Mr. Gregory also forecasts the loonie to tumble further, down to US93¢ before recovering to parity by 2013.

Read more: http://www.ottawacitizen.com/business/fp/rate+hikes+until+2013/5500200/story.html#ixzz1ZuLldhA5

lawlessbrown.com

BoC holds key rate at 1 percent

* Cites Europe, U.S. woes as backdrop for policy shift

* Sees Canadian growth resuming in second half of year

* Says inflation pressures dampened

* Cdn dollar gains, markets pare rate cut expectations (Adds details)

By Louise Egan and Randall Palmer

OTTAWA, Sept 7 (Reuters) - In a dramatic policy shift, the Bank of Canada said on Wednesday it saw less need to raise interest rates, becoming the latest major central bank to take a more cautious stance about the worsening global economy.

The bank held its overnight rate unchanged at 1 percent, where it has been for the past year, and took its previous talk of a rate hike off the table.

"In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished," the central bank said in a statement.

In its July interest rate announcement, the bank said stimulus "will be withdrawn" provided the economy kept growing, leading markets to expect a rate hike later this year.

That forecast looks outdated now, given the European debt crisis, slowing U.S. growth and volatile markets.

Investors were not surprised by the more dovish tone, although many had expected a sharper policy reversal. Most economists still expect the next move in rates to be up rather than down, but it could be a year or more before that happens, and the bank's cautious language left the door open to an eventual move in either direction.

Goldman Sachs this week became the first major financial institution to forecast a Canadian rate cut later this year.

"There is really not much hint that the bank is considering cutting rates, but at the same time, they've pretty much put rate hikes firmly on the shelf," said Doug Porter, deputy chief economist at BMO Capital Markets.

Courtesy of Reuters

LawlessBrown.com

Bank says it will raise rates if economy continues to expand as expected

By Julian Beltrame, The Canadian Press

OTTAWA — The Bank of Canada has signaled that interest rates will likely rise later this year, as long as the still-fragile economic recovery continues to build.

For the sixth straight announcement date the central bank on Tuesday delayed the tightening regime it had begun almost a year ago to the day and kept its trendsetting policy interest rate at one per cent. But in an accompanying statement, the bank did alter its advisory on future action, indicating it will start moving rates closer to their normal levels if the recovery continues on track.

"To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn," it said.

"Such reduction would need to be carefully considered."

It's the first time the bank has signalled in an interest rate announcement that it will eventually have to raise rates, although governor Mark Carney has been warning Canadians in speeches and news conferences that higher rates are coming for more than a year.

Financial markets appeared to react to the new language — the loonie jumped nearly a cent to 103.28 cents US following release of the statement at 9 a.m.

But analysts also said nothing was carved in stone.

The bank's ambiguous phrasing in adding "carefully considered" to its signal of monetary tightening, said CIBC chief economist Avery Shenfeld, puts the odds of a move in July at less than 50 per cent. He predicted the bank will begin tightening in September — about where most economists were prior to the announcement — with the overnight rate being raised to 1.75 per cent by the end of the year.

Another analyst, Scotiabank's Derek Holt, said he was sticking to his prediction of an October restart date but recognized that Carney would feel the need to signal that ultra-low rates would not be around forever.

The markets were starting to think that the Bank of Canada had already given up on this year for moving rates north, and Carney wanted to disabuse investors of the notion, Holt said.

"In the last few weeks we'd seen markets move toward taking out any expected Bank of Canada moves at all this year and I think the bank was getting a little uncomfortable with that."

Holt said the bank seems to be as uncertain about how the recovery will unfold as is most of the world. Policy-makers, including Carney, have of late taken to setting off warning flares about rising risks to the world economy, although the tone in the bank's statement was less alarmist this time.

The bank statement Tuesday appeared to take a slightly darker view of the modest nature of the U.S. recovery and the European debt crisis than it did in April, while repeating its concerns about Japan's dual natural and nuclear disasters

But it continued to say that the global recovery is proceeding broadly as outlined in its last policy review, and so is Canada's. While supply chain disruptions emanating from Japan will cause Canada's second-quarter growth to fall sharply, the negative impacts will be short-lived.

"Although temporary supply chain disruptions are expected to restrain growth sharply in the current quarter, this is expected to be unwound in subsequent quarters," the bank reasoned.

As well, Carney remains convinced that inflation pressures caused by high commodity prices are a temporary phenomenon, at least in Canada.

"The bank expects that high energy prices and changes in provincial indirect taxes will keep total CPI inflation above three per cent in the short term," it says. "Total CPI inflation is expected to converge with core inflation at two per cent by the middle of 2012 as excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored."

The risk to higher inflation is that household borrowing grows, given low rates, but on the other hand, the bank says, the strong Canadian dollar should keep prices of imports in check.

Lawlessbrown.com

Window closing’ on ultra-low mortgage rates

Tim Shufelt, Financial Post · Monday, Feb. 7, 2011

Amid the noise of volatile-but-improving economic indicators, mortgage rate hikes are likely to repeat like a chorus in the coming months.

Canadian banks are raising interest rates on mortgages, marking the beginning of a trend as they correlate with rising bond yields and expected monetary tightening.

That’s making a strong case for borrowers to lock into fixed rates before it’s too late, said Benjamin Tal, deputy chief economist with CIBC World Markets. “The window is closing.”

TD Canada Trust and CIBC both announced Monday hikes to their residential mortgage rates, the first increases since changes to the rules of borrowing were announced by the federal government last month. The other big banks where expected to follow the moves shortly.

Effective Feb. 8, the interest rate on the banks’ benchmark five-year closed fixed rate mortgage will increase 25 basis points to 5.44%. The country’s other major lenders are expected to soon follow suit.

Toronto mortgage broker Paula Roberts said rising borrowing costs will compel more of her clients to abandon ultra-low variable rates in favour of higher, fixed-rate mortgages.

That can be a tough decision for borrowers to accept higher payments, but not one that should strain a mortgagee’s finances, she said.

“If you can’t afford [your payments] ... that’s a problem,” Ms. Roberts said. “That’s why the government has changed the rules.”

In two stages over the past year the federal government announced changes to the conditions of mortgage lending — shortening the maximum amortization from 35 years to 30 years and requiring borrowers to qualify for a fixed-rate plan, even if they are opting for a variable rate.

Many who only qualify under the old rules, however, will try to secure mortgages before the shorter maximum amortization periods come into effect next month, Ms. Roberts said.

“There are going to be a lot of people that will enter into their agreements by March 18.”

Much of the momentum in mortgage rates can be attributed to a bond selloff and rising yields across the board. That effect is partly a reflection of building global inflationary pressures as well as a global economy that is proving more robust than expected.

“In my opinion, the bond market will not be the place to be over the next six months, and if that’s the case, you will see mortgage rates continue to rise,” Mr. Tal said.

In addition, anticipation of increases to the Bank of Canada’s benchmark lending rates is building, also contributing to rising yields, which puts pressure on fixed-income mortgages.

If there was any lingering doubt that the Bank will soon raise rates, last week’s jobs report erased them. The report showed Canada added four times more jobs than expected in January.

“[It] creates a fairly powerful story for the Bank of Canada, which is clearly concerned on the domestic front,” said Camilla Sutton, chief currency strategist at the Bank of Nova Scotia. “I think there’s a material change.”

So do investors. The probability that the central bank will boost its key policy rate by May, as measured by overnight index swaps, jumped to almost 75% after the jobs data. http://www.financialpost.com/news/Window+closing+ultra+mortgage+rates/4239243/story.html#ixzz1DMwQzyWP

lawlessbrown.com

Bank of Canada interest rate unlikely to top 1% this year

John Shmuel July 23, 2010 – 11:16 am

Slower than expected economic growth in the U.S. is set to hamper Canadian exports, meaning the Bank of Canada’s interest rate is unlikely to rise beyond 1% by the end of the year, says a research note from Lombard Street Research.

The bank raised interest rates by 25 basis points earlier this week to 0.75%, in a move that was widely expected. The note, authored by analyst Michael Taylor, points out that the bank adopted a very cautious stance in regard to the Canadian economy going forward.

But Lombard Street Research said it expects lower growth than even the Bank of Canada’s revised figures. That leads Taylor to suggest that interest rate hikes from the bank are likely going to be hold on for much of next year.

"We would agree with a domestic slowdown, due to the expiry of temporary policy measures as well as the effects of higher interest rates on a highly indebted household sector. But the Bank has a rather optimistic view on US real GDP growth, which is expected to be around 3% both this year and next. Healthy growth in the US, combined with the recent fall in the Canadian dollar, has resulted in an increase in projected export growth for 2010 and 2011. Our view is that US growth will be below-trend over the next 18 months or so, restricting the scope for Canadian exports to grow strongly (three quarters of which go to the US)."

That leads Taylor to conclude that although a rate rise is likely at the next bank of Canada monetary policy meeting in September, he expects rates to be on hold thereafter for quite some time.

Read more: http://business.financialpost.com/2010/07/23/bank-of-canada-interest-rate-unlikely-to-top-1-this-year-report/?utm_source=twitterfeed&utm_medium=twitter#ixzz0uWj05DPa


lawlessbrown.com

Bank of Canada rate bump not necessarily a harbinger of hikes to come. Uncertainty over global economy might ease pressure for future increases.

On the same day the Bank of Canada bumped its key lending rate up, a major chartered bank edged a key mortgage rate down, moves that reflected the continuing uncertainty in world financial markets.

The Bank of Canada on Tuesday became the first G7 central bank to raise interest rates since July 2008, hiking its key overnight lending rate one-quarter of a percentage point to 0.5 per cent in a long-anticipated move aimed at keeping Canada's recovering economy from overheating.

However, with uncertainty over the global economy mounting due to turmoil in the European Union, the pressure for future short-term rate increases might be easing.

The turmoil has caused interest rates for longer-term bonds to fall, allowing the Bank of Montreal to trim its five-year discount mortgage rate one-tenth of a percentage point to 4.25 per cent.

Having short-term rates rising while long-term rates are falling, "is a very unique situation we haven't seen in a very long time," said Benjamin Tal, a senior economist with CIBC World Markets.

He said it was "a bold move by the Bank of Canada realizing there is a real risk it will have to [pull back interest rates] after this move."

Commenting on his decision, Bank of Canada governor Mark Carney said "any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," given the uncertainty around the global recovery.

Carney said the decision "still leaves considerable monetary stimulus in place, consistent with achieving the two-per-cent inflation target in light of the significant excess supply in Canada."

The decision came a day after Statistics Canada reported the domestic economy had its strongest quarterly performance in over a decade, as GDP expanded by 6.1 per cent in the three-month period ended March 31.

Tal said one of the reasons Canadian bond interest rates have fallen after increasing in April is because the market had priced in a more aggressive move by the Bank of Canada.

Tal added that it is becoming uncertain whether the central bank will need to continue raising rates at its next meeting in July.

"Even the Bank of Canada isn't convinced they will move again," Tal said.

Doug Porter, deputy chief economist for BMO Capital Markets, said Carney's statement "was unambiguously on the dovish side of expectations with the bank almost bending over backwards to indicate this is not necessarily the start of a relentless campaign to crank rates higher."

In the meantime, Tal said home buyers in the mortgage market also face a unique situation with first-time buyers getting a second opportunity to take advantage of relatively low fixed-term interest rates on longer-term loans, which are tied to the bond market.

Those who already have variable mortgages, which are tied to the bank's prime borrowing rate and influenced by the Bank of Canada's key rate, can expect higher loan payments.

"Ultimately, the [variable-rate] increases will not be significant," Tal predicted.

With variable mortgage rates one-quarter to half a percentage point below the major banks' prime rate of 2.25 per cent, Tuesday's rate change won't add a lot to most monthly mortgage payments.

"A quarter-point increase [does not have] a huge impact," Joanne Vickery, president of the Mortgage Brokers of B.C., said in an interview.

On a $250,000 mortgage amortized over 25 years, for instance, the bump would increase a borrower's mortgage payment by almost $30 to $1,058.

But in future, Vickery said, borrowers should pay more attention to rates and how increases could pinch their budgets.

The Canadian Association of Mortgage Professionals estimates three out of every 10 Canadian mortgage holders have opted for variable-rate loans, which are still a good deal given five-year fixed rates range from BMO's 4.25 per cent to 4.59 per cent.

However, Carolyn Heaney, BMO's area manager of business development in Metro Vancouver, said the bump in rates should be an incentive for borrowers to "stress test" their budgets to determine where their "sleep-at-night factor is, and how comfortable they are with changing interest rates."

depenner@vancouversun.com

Read more: http://www.vancouversun.com/sports/Bank+Canada+rate+bump+necessarily+harbinger+hikes+come/3100753/story.html#ixzz0pp7fmdWG

lawlessbrown.com

JUNE 1 HIKE IN QUESTION

By Claire Sibonney Reuters

The negative news has led many to question whether Bank of Canada will start raising rates from their current record lows on June 1.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, have fallen in recent weeks and on Wednesday indicated just a 51 percent chance of a June 1 rate increase.

On April 20, when the bank removed its conditional pledge to keep interest rates on hold until the end of June, the market priced in more than a 90 percent likelihood.

Currencies tend to strengthen as interest rates rise as higher rates often attract capital flows.

"Even with the ongoing uncertainty, the Canadian situation warrants a small move toward more normal rates so I wouldn't unwind the forecast just yet," said Craig Wright, chief economist at Royal Bank of Canada., whose bank was the last primary dealer to join the call for a June 1 move.

"We're really just looking at a 25 basis point adjustment ... tapping of the brakes rather than slamming them on."

lawlessbrown.com