B of C Cuts Rates to lowest level

If you have investments, this may not be what you want to hear. If you are buying a house it may be just what you have been waiting for. I admit I have not read the whole article (it's pretty long)so I am assuming that the other banks have not followed suit yet and if they go the way they have been, they may not for another week or so. Chances are, they will cut their rate over the next few days. Couldn't be a better time to lock into a nice mtg. as long as you remember there isn't a pot of gold at the end of this rainbow so don't make the mtg. more than you can afford when the rates start to climb because they will.

Bank of Canada cuts interest rate to lowest level practically possible

at 12:09 on April 21, 2009, EDT.

OTTAWA - The Bank of Canada has taken its key policy interest rate to the lowest practical level in an effort to combat what it says has become a deeper than expected economic slump.

The central bank sliced its target for the overnight rate in half to 0.25 per cent - "the effective lower bound" - and signalled it will keep it there until at least mid-2010 in an effort to arrest the economy's steep fall.

The commercial banks quickly cut their prime lending rate in step with the Bank of Canada's move. They were led by Bank of Montreal (TSX:BMO) which announced two minutes after the central bank's announcement that prime - the benchmark for variable-rate mortgages and other loans - was dropping by a quarter-point to 2.25 per cent. Some fixed mortgage rates were also trimmed.

Tuesday's Bank of Canada action suggests governor Mark Carney is willing to pull out all the stops to ease boost borrowing and lending, said economist Michael Gregory of BMO Capital Markets.

"I think this is a first step," he said. "Quantitative easing (expanding the money supply) is looming. I see printing money, high-powered money, as providing excess reserves in the banking system so the banks will do something with that extra money."

Carney will be outlining options for quantitative easing on Thursday, after embracing a new and darker outlook.

"The recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009," the bank's statement said.

It noted that "in an environment of continued high uncertainty," the global recession has intensified since the start of the year, and fiscal and monetary measures to stabilize the financial system "have taken longer than expected to enact."

As a result, Carney has basically thrown out the playbook he outlined in January.

Then, he predicted the recession would end by summer, with total economic shrinkage this year amounting to 1.2 per cent, and followed by a robust recovery in 2010.

Now the bank says the economy won't stop falling until at least the fourth quarter. This is in line with projections by the Organization for Economic Co-operation and Development and a growing number of private-sector economists.

It also is more reflective of an economy that has shed 270,000 since January.

Carney remains a relative optimist about the rebound, predicting a bounce-back of 2.5 per cent next year. While lower than his previous prediction of 3.8 per cent growth in 2010, it is still far above the OECD's forecast of 0.3 per cent.

"Given significant restructuring in a number of sectors, potential growth has been revised down," the bank's statement said.

"The recovery will be importantly supported by the bank's accommodative monetary stance."

Economists at the Bank of Nova Scotia termed the central bank's revised forecast a "significant mid-course correction ... and one that is on the mark across the board."

A Scotiabank note to clients said the central bank "has become much more realistically concerned about the longer-term outlook for the global economy and financial system including its reverberating influences upon Canada."

The new pessimism, or realism as some economists would call it, increases the odds that Carney will do more than outline options for quantitative easing on Thursday, and will soon move into uncharted territory.

The central bank sees no danger of inflation - in fact, it predicts prices will drop at a 0.8 per cent rate in the third quarter and not return to its two per cent target before the third quarter of 2011.

In addition to cutting its headline interest rate, the bank is extending the term of purchase and resale agreements it uses to inject liquidity into money markets, from one and three months to six and 12 months. Minimum and maximum bids will correspond to the historically low target rate.

BMO's Gregory noted that extending the term of PRAs up to a maximum of a year gives the commercial banks funding security at low cost for longer periods.

The central bank also said it will target a daily level of settlement balance in the financial system at $3 billion, a move it says will help drive the overnight rate to the bottom of the trading band.
Wow - I just read a tad further and the commercial banks have already dropped their rates. So if you have job assurance, then now is the time to finance the new truck/car, the new house, or whatever as long as you are reasonable. These can be the best of the worst times so make sure you don't end up paying for that 5 years down the road.
If you have investments, this may not be what you want to hear.

That is not how it works, Islandpacific. Lower interest rates are good for investment. Lower interest rates stimulate the economy, which brings up the stock market.

Investors favour low interest rates; they don’t want high interest rates. So I have investments, and I am happy to hear that. The only people who maybe unhappy are those who put their money in GIC. But for anybody else, it is good news. Thus if you hold bonds, the value of bonds goes up when interest rates go down.
Yes, it seems to be working just fine for us too. I was a bit surprized to see this topic un-answered as I thought it would be interesting for people. I kind of thought the interest rate would be as important to the general public as the cost of gas which, incidently, is reported on as that it will be staying at about the price it is right now for at least the rest of the summer.
I suppose the interest rates were already so low that lowering them some more probably does not make much difference to the people.
Quote: Originally Posted by SirJosephPorterView Post

I suppose the interest rates were already so low that lowering them some more probably does not make much difference to the people.

I agree but you would think that some people would dash out and re-new their mtgs. while the rate is so low. There has to be people on here with mtgs. It's worth paying the penalty depending on when you got your mtg. but in most cases, even if your mtg. is only about 2 yrs. old, it's worth paying the penalty to get the rate down and pay more toward the principle. I have no idea what the rate is on personal loans right now but I would imagine that a personal loan has to beat the rate on things like Visa and MC etc. for anyone with a running balance. Better to amalgamate their debts now and pay one low rate with a manageable payment. Not a better time than now to get out of debt.
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