Category: Mortgage Information

This article appeared on CBC.ca on July 19th, 2011.

The Bank of Canada has kept its bench-mark overnight interest rate steady at one per cent, saying the need to keep the country’s economy growing amid the U.S. and European debt crises outweighs the need to slam the brakes on inflation.

In response to the central bank’s decision, the Canadian dollar has gained more than a cent in morning trading.

The Bank of Canada said Tuesday that Canada faces an uncertain international economic situation with European and U.S. debt concerns dominating the fiscal landscape.

“The U.S. economy has grown at a slower pace than expected and continues to be restrained by the consolidation of household balance sheets and slow growth in employment,” the bank said in a press release.

“While growth in core Europe has been stronger than expected, necessary fiscal austerity measures in a number of countries will restrain growth over the projection horizon.”

Thus, while Canada is growing roughly as the central bank had forecast, the country still faces a threat to its slowly-recovering export sales, partly because of weak U.S. economic growth and partly because of a rising Canadian currency.

Tuesday’s rate decision provided further lift for the Canadian loonie. The currency traded at $1.053 US in mid-morning, up from Monday’s Bank of Canada close of $1.043 US.

Growth versus inflation

Economists had split as to whether the bank would raise its overnight borrowing rate or keep the trend-setting interest rate at its current, record-low level as the July decision approached.

Late last year, Bank of Canada governor Mark Carney talked extensively about the need for Canadians to rein in their personal debt levels, a signal many experts interpreted as the central banker about to get tough on rising prices.

Indeed, many economists began predicting that the bank would boost rates in July, especially after three months — March, April and May — when inflation popped above the central bank’s one-to-three-per-cent target range for price growth.

Carney, however, began signaling a change of sentiment in June when he talked about the financial “headwinds” Canada faced in an interview with the Wall Street Journal.

His wording lead to a subtle shift in thinking among Carney watchers.

“The hard place that Carney is caught between is the growing risk that Canada’s economy will underperform expectations if U.S. demand remains weak and/or Europe’s credit crisis erupts and spews lava across global financial markets,” said BMO Capital Markets economist Sal Guatieri in a commentary prior to Tuesday’s rate announcement.

Economic growth — something central bankers are trained to generally ignore — began pushing out concerns over rising prices in the bank’s thinking, experts said.

Still, many economists believe the Bank of Canada will boost interest rates towards the end of 2011 as long as the Canadian economy keeps to its current decent GDP growth path.

RBC Economics, for example, currently predicts that Canada’s economy will grow at a 3.2 per cent clip in 2011, equal to the growth rate for 2010.
Europe and America

There are growing fears that the Greek debt crisis is spreading to other European countries, especially the continent’s third biggest economy — Italy.

As well, the administration of U.S. President Barack Obama has so far failed to reach a deal with the U.S. Congress over whether to raise Washington’s borrowing ceiling.

Failure to get an agreement by Aug. 2 risks placing the world’s largest economy in technical default of it debt obligations.

Both situations hold the potential to drive the global economy back into a recession similar to the one in 2008-09 or at least to reduce the potential economic growth for most countries, experts have warned.
Into the winter

Still, the Bank of Canada said it is eyeing rate hikes into the later months of 2011.

“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 withdrawn,” the Bank’s statement said.

The central bank now forecasts that Canada will expand by 2.8 per cent in 2011 and 2.6 per cent in 2012, the year that the Bank expects the Canadian economy will reach full capacity.

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This article appeared on Canoe.ca on July 4th, 2011.

RBC Royal Bank and TD Canada Trust said Monday they will raise their benchmark five-year fixed-rate mortgage 15 basis points, to 5.54%.

Other banks are expected to follow suit, since the hike reflects rising bond returns in the wider market, which lift the costs of funds for all lenders.

Despite Monday’s news, mortgage rates are still lower than they were just three months ago, and way below historical norms. And lower promotional rates are available at most lenders, including RBC and TD.

Bank of Canada Governor Mark Carney has held the key interest rate at 1% since last September, after lifting it from a rock-bottom 0.25%. The next rate decision is due out July 19, though most economists now expect the central bank won’t resume rate increases until at least September.

Anyone hoping to buy a home with the help of Canada’s largest bank has until the end of Monday to get the best possible rate.

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This article appeared on the Globe and Mail on April 4th, 2011.

Several of Canada’s big banks are raising most of their fixed-term mortgage rates ahead of the busy spring real estate market.

Toronto-Dominion Bank said the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 of a percentage point starting Tuesday.

The move was matched by Canadian Imperial Bank of Commerce.

Royal Bank of Canada raised its rates on mortgages for five and 10-year terms by 0.35 or a percentage point, and its seven-year rate by 0.15 of a percentage point.

The posted rate for five-year closed mortgages — one of the most popular types of loans for Canadian home owners — will rise to 5.69 per cent.

The three banks will also raise their rates on one-year, three-year and four-year terms by 0.2 of a percentage point while two-year terms go up 0.3 of a percentage point.

Fixed mortgage rates, which are closely tied to the bond market, tend to climb when traders shift investment activity to riskier equity assets from bonds, which are considered safer.

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This article appeared on The Record on March 19, 2011 and was written by Steve Rennie and Mary Gazze (The Canadian Press).

Canada’s annual inflation rate fell slightly in February, giving the Bank of Canada room to keep interest rates low over the next few months, economists say.

Statistics Canada said Friday its consumer price index edged down one-tenth of a point to 2.2 per cent in February, with rising energy and gas prices keeping inflation just above the Bank of Canada’s ideal two per cent target.

The core inflation rate, which excludes volatile items such as gas and food, fell to 0.9 per cent — its lowest level since the government started keeping records in 1984. Economists had predicted an annual core rate of 1.1 per cent and annual inflation to remain at the January level of 2.3 per cent.

It all means the country’s central bank might take its time when it comes to raising interest rates, said CIBC World Markets economist Emanuella Enenajor.

“These (inflation) numbers certainly make it less likely that a May rate hike could happen, we do have to admit,” she said.

“Such a soft core number suggests there’s less pressure for the Bank of Canada to really start hiking rates aggressively so it gives it a little more leeway.”

She said CIBC is for now sticking with its prediction that Canadians will see rates go above the current one per cent in May and that they will end up at two per cent by the end of the year.

Canada’s economic growth surpassed expectations in the last half of 2010 and the Bank of Canada may want to get ahead of any resulting spike in prices by raising interest rates and cooling lending conditions, she said.

Doug Porter, deputy chief economist at BMO Capital Markets said he believes the central is likely to stick with lower rates for the short term.

“Both headline and core inflation have eased since the start of the year, at least partly thanks to the lofty loonie,” he wrote in a note to investors, pointing out that Canada’s core inflation rate is lower than that of the U.S. and rest of the world.

“This is set to reverse next month, as Canada gets with the global program, but the low starting point is very favourable. Suffice it to say that this keeps the pressure well off the Bank of Canada to get back in tightening mode any time soon.”

Enenajor said the March inflation rate will likely depend on oil price movement during the rest of the month.

“However, expect both the annual headline and core rate to move higher in March on a year-on-year basis,” she said.

Prices were higher in February in six of the eight major categories tracked by the agency, but items like women’s clothing, footwear and travel tours cost less than a year earlier.

On a month-to-month basis, consumer goods were 0.3 per cent more expensive last month than in January, mostly due to higher energy and gasoline prices. Canadians paid 10.6 per cent more for energy during the year leading up to February, after posting a nine per cent increase in January.

Gas prices soared 15.7 per cent last month, on top of the already recorded 13 per cent increase in the 12 months leading up to January.

On a regional basis, Nova Scotia remained the province with the highest inflation rate at 3.4 per cent. Many people in that province use oil and other fuel to heat their homes.

Alberta continued to enjoy the most stable prices, with an inflation rate of 1.2 per cent.

Drivers in every province except Manitoba faced double-digit price increases for gasoline on a year-over-year basis. The price at the pumps was up 15.7 per cent from a year earlier.

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