Bank of Canada increases overnight rate target to 1 per cent

[herefishyfishy]

Bank of Canada increases overnight rate target to 1 per cent

Link:
Bank of Canada increases overnight rate target ...- 2010- Press Releases- Publications and Research- Bank of Canada

[herefishyfishy]

A few excerpts:

In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity.

Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.

[tony1928]

I actually found this most recent BoC rate increase rather confusing. Everything points to the recovery being stalled, muted, not as robust as it was appearing, whatever you want to call it. But it seems that the BoC was already set on increasing the rates no matter what. Inflation is more or less zero or even some may say might be heading negative. Combined with the fact the US just dropped mortgage rates as well. There just wasn't a solid reason for the BoC to act. Ah well, not much we can do as we're at the mercy of the government. I'm just complaining.

[2wheelsx2]

They'll figure it out pretty quick when it kills the housing market and causes a cascade effect on spending. The housing market just starting to move up this last month here.

[tony1928]

I work with alot of investment managers and their take seem to be that BoC feel that the current rate is just way too low. With the overnight rate being one of their most powerful tools, they wanted to build it back up to a level where if they needed to cut rates, it would actually be effective. Makes sense I suppose, but I just don't think the time is right for doing increases given the markets. Likely why they are increasing by 0.25% at a time. They will probably stop the increases once they see it impacting the housing market but I think they will keep up these little increases until that happens. The market seems to think that the economy isn't going to be that great given the 5 year fixed mortgage rates of only around 3.8%.

[2wheelsx2]

I'm still below prime on my variable rate, so I'm happy.

But just in the last month, the houses in my neighbourhood have been selling like hotcakes. And tons of new builds. I think this is going to kill that.

[tony1928]

Yeah, I'm at prime not prime minus so I'm choked. I hear from brokers that there's the possibility of rates going to prime minus 0.8. Bit of a reflection on reality as the overnight rate goes up.

The houses that sell are the one's that are priced right. We have one across the street from me that's basically lot value, standard 33 x 122. Listed for $699k. Hasn't sold for months. I think some people need to adjust their expectations. I was actually thinking that the HST would dampen alot of new home sales. It's alot of extra cash that people need to come up with on closing.