20 Sep

Today’s low Rates & how the experts foresee the rise


Posted by: Jason Zailo

Rate Outlook Clear as Mud

“The fact is we’re three years in to the global financial crisis and its dynamics still dominate the economic outlook.” – BoC chief, Mark Carney 

The question everyone wants to know is: How long will that be true?  The answer, which is as ambiguous as ever, has a direct bearing on the mortgage rates. 

As always, we can count on the “professional predictors” to have an opinion. Here’s a sampling of what they’re saying now, following a week that brought the third consecutive BoC rate increase and an anemic employment report.

The economy will have to worsen further “to prompt the central bank to stop raising rates.” – BMO Capital Markets, deputy chief economist, Douglas Porter (Ottawa Citizen)

“…The (Bank of Canada’s) language suggests the bank may pause longer than merely the next meeting or two.” – BNY Mellon strategist, Michael Woolfolk (Global)

“In our opinion, the odds favour the Bank of Canada pausing for some time…TD Economics does not anticipate another tightening before March of next year.” – TD Chief economist, Craig Alexander (CBC)

“…The bank (of Canada) doesn’t know what it is going to do.” – CIBC World Markets Chief Economist, Avery Shenfeld (Vancouver Sun)

“…Rates are low and likely to rise at only a gradual pace in the next 18 months…” – TD Chief economist, Craig Alexander (Globe & Mail)

Do you get the sense that no one really knows where rates will be 12 months from now? If so, you’re right.

But that matters less than one might think.  TD’s Craig Alexander told the Globe’s Rob Carrick this week: “Rates are remarkably low by historical standards. People get so hung up on the direction of interest rates. The level matters.”

Translation:  Today’s 3.59%-3.79% five-year fixed rates are manna from heaven.  So are 2.90% three-year fixed rates and 2.30% variable rates.

Rates are so good in general that most people don’t need to drive themselves to insanity while choosing between fixed or variable rates. As long as you don’t borrow over your head, your finances won’t be decimated by making the wrong choice.

Melanie & Rob McLister, CANADIANMORTGAGETRENDS.COM, September 12, 2010

2 Sep

Insight into the future of our low rates


Posted by: Jason Zailo


CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad

TORONTO, Aug. 18 /CNW/ – Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.

“North America’s story is again darkening,” says CIBC’s Chief Economist Avery Shenfeld in the latest Global Positioning Strategy report. “We were looking for a material second-half slowdown for the U.S. but as it turns out, it’s already happened.”

Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.

And still ahead is a “further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.

“Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”

While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.

For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.

Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”

Mr. Shenfeld doubts that the Bank of Canada “has been shocked enough to forestall a rate hike in September” but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC’s outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.

The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.

“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”

As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.

A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld.

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf


CIBC World Markets Inc. is the corporate and investment banking arm of CIBC. To deliver on our mandate as a premier client-focused and Canadian-based wholesale bank, we provide a wide range of credit, capital markets, investment banking, merchant banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.