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leec001
01-19-2009, 01:34 PM
Next rate cut coming

'Weaker vehicle sales and plunging gas prices'

By Eric Beauchesne, Canwest News Service January 18, 2009

OTTAWA -- Recession-wary consumers can probably expect a further cut in interest rates and news of another drop in the inflation rate this coming week, but with both at or heading toward record lows, there's not much room for further relief on either front.

And that leaves it to the government to finally step in to do its part, which it is promising to do with billions of dollars in spending increases and tax cuts in its Jan. 27 budget the following week.

Before that happens, analysts expect the Bank of Canada on Tuesday will cut its trendsetting target rate for overnight loans to the banking sector by a further half point to a record low one per cent. If matched by chartered banks, it will bring the blue-chip prime rate, to which floating consumer and business loans are tied, to an all-time low of three per cent.

The "significant rise in unemployment and continuing weakness in economic activity, both global and domestic," will be cited by the central bank when it announces the rate cut, analysts at UBS Securities Canada said.

And there will be more evidence of economic weakness here and elsewhere as the week unfolds, including another retreat in domestic inflation as well as declines in Canadian retail sales and factory shipments, UBS projected.

"Plummeting gasoline prices likely helped the total consumer price record its third consecutive monthly decline, falling about 0.4 per cent month-over-month in December," it said.

UBS analysts are projecting the annual inflation rate -- the change in prices from a year earlier --will fall to 1.5 per cent and below the central bank's two per cent target, where it was in November, and down from 3.5 per cent just four months ago.

"Dramatically weaker new motor vehicle sales and plunging gasoline prices figure prominently in our forecast for retail sales to post a 1.4 per cent month-over-month decline for November," UBS said. "Weak manufacturing employment, lower commodity prices and reduced output lead us to believe manufacturing sales declined for the fourth month in a row in November, falling 1.2 per cent month-over-month."

The expected signs of further weakening follow reports so far this year of massive job losses, falling home sales and prices, continued declines in exports and imports.

The Bank of Canada, following its expected rate cut on Tuesday, will release its quarterly Monetary Policy Report Thursday, in which it will provide a further explanation of its interest-rate decision as well as an updated outlook for the economy. Further explanations will follow at Bank of Canada governor Mark Carney's news conference after the report's release.

But much of the focus over the coming week will be south of the border, in large part because of president-elect Barack Obama's inauguration. But also, it's what happens in the giant U.S. economy that will have the greatest impact on what happens to the Canadian and global economies.

However, outside of the celebration of Martin Luther King Day tomorrow, when U.S. markets will be closed, and the inauguration on Tuesday, there will be little to cheer, as analysts expect further evidence that the recession there is still deepening.

© Copyright (c) The Province

Good news for people have variable rate mortgages / loans......... :thumbsup:

Darkane
01-19-2009, 03:02 PM
Holy shit, my mortgage will be 2.5%.

Insanity

leec001
01-19-2009, 03:33 PM
Originally posted by Darkane
Holy shit, my mortgage will be 2.5%.

Insanity

It is gonna to be 2.25% for me. SWEET................:rofl:

Masked Bandit
01-19-2009, 03:40 PM
Don't be so sure that the bankS will pass along the full rate cut........AGAIN!

Canmorite
01-19-2009, 03:48 PM
1.5% is low enough...

Mckenzie
01-19-2009, 03:50 PM
This is fine for my line of credits but hardly exciting for someone who is told that their 3% return beat the market by 50%. Have we not yet learned the lesson from Japan?

GQBalla
01-19-2009, 04:18 PM
ddamnit!..

i should buy asap!

dezmarez
01-19-2009, 04:20 PM
Originally posted by Mckenzie
This is fine for my line of credits but hardly exciting for someone who is told that their 3% return beat the market by 50%. Have we not yet learned the lesson from Japan?


exactly!! japan had no growth for what...15 years, sure it's great on the borrowing side but think of retirement and not having any real growth over 15 years!!!

Mckenzie
01-19-2009, 04:28 PM
Yeah they are still at no / little growth.

As the Canadian Warren Buffet said, there is really no incentive for people to invest / lend at these levels as there is very little profit to be made. Better off just paying off your own higher rate debt for now as you are not going to earn anything significant from the market / dividends / interest, etc.

Beerking
01-19-2009, 05:01 PM
Yay, my "High Interest" MOney master savings account is gonna be a whopping 1%!!!!
DING DING DING DING!!!!!

Xtrema
01-19-2009, 05:18 PM
Originally posted by Mckenzie
As the Canadian Warren Buffet said, there is really no incentive for people to invest / lend at these levels as there is very little profit to be made. Better off just paying off your own higher rate debt for now as you are not going to earn anything significant from the market / dividends / interest, etc.

Exactly. People are hording cash right now and nobody will trust the stock market for a while. Low interest won't help other than refinancing for mortgages and LOCs.

BigMass
01-19-2009, 07:41 PM
Shouldn’t the government increase rates to encourage and reward saving instead of lowering rates to encourage reckless borrowing, which is what got us here in the first place?

max_boost
01-19-2009, 07:55 PM
^^

Have to get people to spend to get the economy moving again.

BigMass
01-19-2009, 07:59 PM
Originally posted by max_boost
^^

Have to get people to spend to get the economy moving again.

by spending money they don't have?

JordanLotoski
01-19-2009, 08:12 PM
The government wants to increase spending to get us out of this mess we are in....lower the rates the more poeple will spend.

check PM

max_boost
01-19-2009, 08:33 PM
Originally posted by BigMass


by spending money they don't have?

I don't know what people can or can't afford.

I'm just saying tThey aren't going to give out free money to people with shitty credit. That's the difference between here and down South. You still have to be qualified. Lower rates will ease the minds of those with credit lines etc. It's a psychological thing. Can you imagine having a high prime rate right now? It would make things worse! A low interest rate is what's preventing people from walking away from their homes.

What would you suggest they do? Damn if they do, damn if they don't!

Xtrema
01-19-2009, 08:47 PM
Originally posted by BigMass


by spending money they don't have?

Yes.

Hopefully low rate is an incentive to get businesses going. All businesses run on borrowed money.


And on the other end, they also hope consumer would spend to keep these businesses going. Though I doubt that will happen since we have been on spending mode since 9/11. Better part of Asia has been low interest for a decade and nothing happens. So if consumer is retreating for a while, expect the whole market to be quiet for a least a few years.

The only good thing come out of this is the entitled generation is now being taught a very tough lesson. They are no longer competitive in this job market.

Masked Bandit
01-20-2009, 09:36 AM
So it was confirmed this morning, .5% rate cut. Now, let's see what chunk of that the banks actually pass along.

leec001
01-20-2009, 10:02 AM
Originally posted by Masked Bandit
Don't be so sure that the bankS will pass along the full rate cut........AGAIN!

Bank of Canada cuts to record low 1%

Commercial banks chop prime rates

By Paul Vieira, Financial PostJanuary 20, 2009 8:59 AM
In the face of an "intensifying" financial crisis, the Bank of Canada cut its benchmark lending rate Tuesday by another 50 basis points, to a record low 1%, on the belief the domestic economy will contract 1.2% this year and experience two quarters in which inflation dips below zero.

The bearish outlook is in stark contrast to the central bank’s previous projection, of 0.6% economic growth this year, issued last October. There was also no indication in the fall outlook that total inflation, which includes volatile items such as food and energy, would dip below zero. As a result, total and core inflation are expected to reach the bank’s preferred 2% target in the first half of 2011, as opposed to the end of 2010.

The bank also warned that the "stabilization" of the global financial system is a "precondition" for economic recovery.

The updated projections provide a preview of what’s in the offing in the latest edition of the central bank’s monetary policy report, scheduled for release on Thursday.

The latest reduction means the Bank of Canada has reduced its overnight rate target by 350 basis points in the last 13 months. The central bank indicated it would continue to monitor developments to judge "what extent further monetary stimulus" would be required, leading some analysts to believe another half-percentage-point reduction is coming in March.

Bank of Montreal appeared to be the first chartered bank to match the central bank’s move, saying in a statement it was decreasing its prime rate to 3% from 3.5%, effective Wednesday. Most of its competitors quickly followed.

The size of Tuesday’s rate cut, anticipated among the majority of Bay Street economists, comes as data suggest weakness in the Canadian economy has spread from the trade sector to household spending and the labour market, and that businesses’ assessments of the growth outlook have turned sharply negative. Financial traders had bet the central bank would undertake a deeper rate cut, of 75 basis points, matching its last move on Dec. 9.

"The outlook for the global economy has deteriorated since the bank’s December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity," the bank said in a statement explaining its half-percentage-point cut. "Heightened uncertainty is undermining business and household confidence worldwide, and eroding domestic demand."

Industrialized economies, including Canada, are in recession, the bank said, adding emerging market economies, whose demand for commodities drove growth this decade, are "increasingly affected."

Just as the Bank of Canada released its rate decision, Statistics Canada reported that manufacturers posted their biggest monthly sales decline on record in November. Statscan said sales were down 6.4% to $48.4-billion during the month, compared to economists’ forecasts of a 2.5% decline.

Based on sharp reductions in exports, and declines in incomes, household wealth and consumer confidence, the bank now projects the Canadian economy to contract 1.2% in 2009. But it expects economic growth to rebound by a healthy 3.8% in 2010, as fiscal and monetary policy actions take hold and a lower Canadian dollar makes our exports cheaper for the rest of the world.

Further, the central bank now believes total inflation is expected to dip below zero for two quarters in 2009, reflecting year-on-year drops in energy prices. It expects core inflation, which removes volatile elements like energy from the equation, to reach a bottom of 1.1% in the fourth quarter.

With inflation expectations "well-anchored," the bank said total and core inflation should return to its preferred 2% target in the first half of 2011. The bank sets its key-lending rate to ensure inflation is at the 2% mark.

In its fall forecast, the Bank of Canada expected inflation of 1% by the second half of this year and core inflation of 1.6%.

"Low, stable and predictable inflation is the best contribution monetary policy can make to long-term economic growth and financial stability," the central bank said.

Pascal Gauthier, economist at Toronto-Dominion Bank, said he expects the bank to cut rates again, by another 50 basis points, at its March 3 decision — and stay at 0.50% for some time. "Given the considerable amount of remaining uncertainty and the fact that the Canadian recession has just started, the rate is expected to stay at this record low well into 2010 before inflation starts registering on the radar again."

© Copyright (c) National Post