Global Banks Unite in Unprecedented Rate Cuts
In an unscheduled move today, coordinated with several other international banks, The Bank of Canada reduced their Overnight Rate by 1/2 of one percent.
The financial institutions would be expected to follow suit over the next day or so; reducing their Prime Rate to 4.25%; however see note below. Any reduction will result in reduced interest costs for homeowners in variable and adjustable rate mortgages, lines of credit and those who have approvals in place but which have not yet funded.
But be aware some lenders have withdrawn their variable and adjustable rate mortgages and lines of credit from their offerings. No new applications are being accepted with these lenders. Other lenders have moved from rates as low as Prime minus .6% to rates expressed as Prime, Prime plus 1/4 percent to Prime + 1%. So compared to last week or last month a NEW borrower’s cost of mortgage money has gone up
Fixed rate mortgage products are still readily available. We are seeing rate increases. 5 year money, as a benchmark, is shifting from 5.45% to the 5.79% range.
As of 2:30 p.m today ATB Financial and FirstLine Mortgages (div. of CIBC) have indicated that they are only reducing Prime by one QUARTER of one percent.
FirstLine indicates that “This is the same move made my all Major Chartered Banks.”
Sounds like a bit of a stand-off with the Bank of Canada. Stay tuned to the news.
The next scheduled Bank of Canada announcement date is October 21, 2008.
The Bank of Canada announcement is included below the signature box. Also some commentary from ATB senior economist Todd Hirsch.
We are available at your pleasure to discuss this further and to review current and future mortgage needs.
Sincerely
FOR IMMEDIATE RELEASE
8 October 2008 | CONTACT: Jeremy Harrison
613 323-1402
Jill Vardy
613 782-8782 |
-->Central Banks Announce Coordinated Interest Rate Reductions
Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.
Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.
Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.
Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent
The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.
The intensification of the global financial crisis is having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly.
As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions. Weaker growth in the United States and other important trading partners will increase the drag on the Canadian economy coming from net exports. The deterioration of our terms of trade will act to moderate the growth of domestic demand. While the recent depreciation of the Canadian dollar will help cushion the effects of the weaker global outlook on the domestic economy, it will not completely offset them.
Below-potential growth in aggregate demand through 2009, combined with a lower profile for commodity prices, will significantly ease inflation pressures in Canada. Inflation expectations remain well anchored.
In view of these developments, the Bank of Canada decided to join other major central banks and lower its target for the overnight rate by 50 basis points today. This action will provide timely and significant support to the Canadian economy. The Bank will continue to monitor carefully economic and financial developments, along with the evolution of risks, in judging whether any further action might be required to achieve its 2 per cent inflation target over the medium term.
Information note:
The Bank of Canada's next scheduled date for announcing the overnight rate target is 21 October 2008. A full update of the Bank's outlook for growth and inflation, including risks to the projection, will be set out in the Monetary Policy Report, to be published on 23 October 2008.
Bank of England
Bank of Japan
European Central Bank
Federal Reserve System
Swiss National Bank
Sveriges Riksbank
Relax Canada, it's not the end of the world Paul Vieira in Ottawa, Financial Post
As far as Todd Hirsch is concerned, what will happen to Canada during the pending economic slowdown is akin to what happens to an automobile that drives over a nasty pothole – there will be substantial damage to certain parts, most notably the axle, but no lives will be lost.
Predictions of anything worse for Canada are somewhat exaggerated, said the senior economist with ATB Financial, the Alberta-owned lender.
"We are making it out to be worse than what it will be," Mr. Hirsch said. "This isn't the end of the world. It is not the apocalypse. The economy is likely in for a few, really nasty quarters, especially in 2009. But this, too, shall end."
There is no disagreement among economists, such as Mr. Hirsch, that Canada will be hit by the global downturn sparked by the U.S.-stoked global credit crunch. But, in an historical context, the hurt Canada will sustain will turn out to be manageable and not as bruising as past economic slumps.
"We are forecasting a downturn in the Canadian economy, but the consequences are unlikely to be as profound for Canadians as they are for the U.S.," said Derek Holt, vice-president of economics at Scotia Capital.
He attributed this to the state of Canadian public finances, which are much improved compared with when the last recession hit in the early 1990s. According to the last budget, Canada's debt-to-GDP ratio has fallen to roughly 29%, from its peak of 68.4% in the mid-1990s
"The late 1980s and early 1990s, Canada had lost complete control of its fiscal policy, so going into a downturn on the economy the country had to do the opposite of what would have been sound policy by hiking taxes and cutting spending.
"This time around, we are the poster child of fiscal health across the industrialized economies," he added. "The U.S., Japan and Europe have been awash in a sea of red ink for years."
Of course, bad news or bearish forecasts will continue to emerge. For instance, Toronto-Dominion Bank released a report yesterday indicating that Canadian job growth "will hit a wall" in the coming months.
Beata Caranci, TD's director of economic forecasting and the report's author, said she expects a "paltry" 30,000 jobs to be created over the next nine months. For the year up to Aug. 31, the economy saw 87,000 jobs created.
However, she said, "this isn't a return to 1990-91 type scenario, or a period of extremely slack job markets, because we are starting from a much tighter position."
She said she expects unemployment to creep up to 6.7% over the next three quarters, from its current 6.1%. But the 6.7% rate would still be lower than the unemployment rates seen over the three-decade period starting in 1975, her report said.
Of course, the coming woes have attracted much attention from political leaders as they crisscross the country seeking votes ahead of the Oct. 14 election. "There is a lot of finger pointing going on in Canada," Mr. Holt said, "but fundamentally at the end of the day this period of weakness isn't reflective of anything we have done horribly wrong."