Monday, May 31, 2010

All eyes on the Bank of Canada

With GDP YOY growth at over 6%, the highest of the developed countries.

With the jump in personal debt spurred by zero rates.

With the bubble in housing across Canada, not just in Vancouver.

Will Carney and his band have the balls increase 0.25% tomorrow? Remembering that neutral would be nearer 3%


  1. dont hold your breath, BoC will never raise the rates before the Fed. I dont expect a rate increase tomorrow, just strong language. We have come to a point where RE in this country is such a huge component of our economic activity that all things will done to keep the status quo.

  2. Good point, however I think they will go with 0.25%.

    Canada has had growth at 2X the US and that should allow the B of C to come out from behind their rock.

    0.25% has no effect whatsoever and actually takes some pressure off the long end by reducing inflation fears (though again it has no effect in reality) and it allows the B of C to act and sound responsible (though how a rate of 0.5% can be regarded as responsible is byeond me)

  3. Where do you see rates ending up at the end of the year and into 2011?

  4. I even heard a rumour of 0.50%...though I doubt it (but one can dream!)

  5. That's a tough call. Because:

    1) I don't see too much inflation right now. We are at risk worldwide of a double dip recession.

    2) Even if we do see some inflation, the current Greenspanites are so different from the prudent Volkerite Central bankers that they will want to see inflation take a good hold before they raise rates.

    3) Remember also, as they raise rates, the cost of servicing the huge deficits all governments (and Provinces) are running goes up. Unless you have a very robust economy to bring higher tax revenues, then you will have to tax more (HST) or cut.

    4) The Finance industry has blown it. The economy is like a guy who full of hungry speculators. Every time they got into trouble, they baled them out. Ergo it made sense to be IMprudent. Then the economy could take no more speculation and it went under. They are playing by the same book.

    Bale, bale, bale. Except you need bigger buckets to remove the water seeping in.

    I cannot see how this has a benign outcome but hope to be pleasantly surprised.

    There is that long enough? Oh, I didn't answer your question.

    I think that could be it 0.5% or 0.75% at most.

  6. It really depends on the world economy. There is a good possibility that we get a double dip recession later this year and the markets will sense this and drop sooner rather later.

    If that happens, then the B of C will say...dang we shouldn't have even gone up the tiny bit we did.

    What they should do, is rapidly go up to 1%. 0.25% and 1% are nearly the same.

    Then if they see the drop coming they can cut again. the effect will be psychologically, but will have an effect, like taking off tight shoes at the end of the day...ahh..I feel better now!

    That would too radical and innovative though. Expect the baby-steps. With baby-steps there is no more cutting left to do, if it hits the fan again.

  7. I think setting interest rates below the rate of inflation is contemptible. It just shows what a fraud everything is. Why not just send checks to everyone in debt, and bills to anyone who saves? That would at least be transparent.

  8. Well 0.25% it is.

    And that folks could well be it for the rest of year or maybe another 0.25%.

    Of course just because I called this one right doesn't mean I will be right on the above. We could end the year at 1%, but for now that is just a far-away fantasy :)