|
Call Now! 1-866-932-8412 or
Email: info@mortgagegirl.ca |
The Bank of Canada has raised again its benchmark interest rate by 0.25% to 0.75% on Tuesday, the second consecutive hike after more than a year of record low rates.
The bank had previously raised its benchmark rate to 0.5 per cent in June after having kept rates at emergency lows since April 2009.
In the accompanying statement, Mark Carney and his team said:
The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.
The bank also made it clear that future rate hikes are not guaranteed.
“Any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” the bank added in its statement.
In raising the rate, the bank is effectively slowing down Canada’s economy, which had shown signs of significant strength in recent months, by boosting the country’s dollar and curbing exports. In terms of borrowing costs, strong demand for Canadian debt from foreigners should work to keep longer term yields down, so the effect of the bank’s hikes will be felt more on the short term end of the yield curve.
Economists predict Carney will raise rates again in September before pausing at one of two meetings in the fourth quarter, when economic growth may slow to a 3.1 percent pace instead of the 3.5 percent the bank predicted in April.
By Sunny Freeman,
The Canadian Press
TORONTO – Recession-battered Canadians are growing more conservative with their money and turning away from high risk investments to the safety of savings accounts — a trend that banks are cashing in on, industry insiders say.
Canadians this year have opened about 20 per cent more chequing and savings accounts than last — a giant leap from the average three to five per cent annual increase, said financial services consultant David McVay.
“Canadians are more conservative than they were in 2007,” McVay said, adding that more consumers are paying off debt, opening RRSPs and tax-free savings accounts than they were a year ago.
“We’re seeing a shift from stock investing into keeping more money in savings accounts because of the financial crisis,” he said.
The shift to safer investments is being driven by a nervous baby boom generation who “have lost their mojo” after the plunging stock market wreaked havoc on their retirement investments, McVay said.
They no longer want to take on the risk of a crash that could force them to work another five or 10 years.
“The banks are marketing to the uncertainty that Canadians have about their savings and retirement plans caused by the financial crisis,” McVay said.
Banks are looking to capitalize on the conservative shift in consumer sentiment because they can make more money from savings accounts than they can when stocks and bonds are in vogue, he added.
The 20 per cent increase in retail accounts amounts to about $100 billion in business — and Canadian banks are fighting aggressively for customers with cash-back and points incentives, McVay said.
TD Bank economist Grant Bishop agrees that the trend away from risky equity markets has increased competition for deposits.
“You did see banks increasing the attractiveness in order to get the largest bulk of that cash flowing in,” Bishop said.
But the rush into precautionary savings during the initial phases of the recession, has since dropped off, he added.
As the early stages of recovery took hold, consumers began to take advantage of historically low interest rates and favourable borrowing conditions.
“We did see households, spurred by ultra-low interest rates, accumulating debt, largely for the purpose of home ownership,” he said.
“But going forward that does need to slow and households do need to save more in order to rebalance their finances and bring down the potential vulnerabilities that households would face as interest rates rise.”
As interest rates on loans begin a cycle of gradual hikes, borrowing will become more expensive. As the same time, that should eventually translate into higher interest on savings accounts.
Scotiabank released results of a survey of Canadians’ savings habits Tuesday that found nearly one-third of Canadians do not have a savings plan in place even though almost everybody —94 per cent— said they feel better when they have a safety net of savings.
That means there is still a large untapped market of Canadians who are looking for help with their savings.
“We did have a tough period in the last few years and I think now is a great time to really focus on this and get people thinking about how they can save,” said Gillian Riley, Scotiabank senior vice-president of retail deposits, payment and lending.
“Over the last year we certainly have seen some movement towards savings as a flight to safety,” Riley added.
About 55 per cent of the 1,000 Canadians surveyed by Harris/Decima for Scotiabank in March told pollsters they save on a regular basis. Still, nearly one-in-five Canadians said they don’t have any rainy day savings at all.
Household consumption had been growing at a faster rate than income growth, indicating that Canadians were taking on more debt to fuel domestic spending, Bishop said, adding that TD predicts that the pace of credit growth will slow in the near future.
The personal debt to income ratio has climbed dramatically in the past year, Bishop said. It sits at around 147 per cent, meaning for every dollar of income households earn, they hold about $1.47 in debt.
“That reflects that households still do need to save a larger portion than they were during the pre-recession period … in order to pay down debt.”
Will the Bulls Keep Running?
By Peter Buchanan
research.cibcwm.com
Besides Pamplona, the bulls were out in some force this week on Wall Street, after a lengthy absence. Whether they continue to roam quite so freely will depend in no small part on the upcoming S&P earnings season, which begins Monday.
Market eyes will also be on China. That country, a centre of slowdown fears that have battered commodities, reports Q2 GDP on Thursday, becoming the first major economy to do so.
Investors and companies have had their plates full of market moving developments lately. Eurozone contagion fears dominated the headlines during the spring. More recently, concerns have shifted to the US economy itself. Forward-looking data is always more critical in interesting times. Analysts are expecting a year-on-year rise of 23% in earnings for the S&P 500 in the quarter ended. How well firms do against that target will as always be of significance. But even more important, given the fast-changing backdrop, will be the clues provided in the guidance of what to expect down the road. Announcements from some firms have suggested that meeting last quarter’s targets may not prove so difficult. However, the year-on-year comps will get more challenging from here as the earnings recovery matures. Given that fact, a loss of fiscal support and drag from the higher dollar, investors will be more interested in firms’ views on their ability to validate the 27% and 31% earnings gains pencilled in for Q3 and Q4, based on the Thomson data.
Double-dip recession fears appear to have eased a bit in recent days, contributing to the improved tone. That’s not so surprising. While the housing data has been abysmal, two broader gauges of the US economy’s health are still some way from recessionary territory. The yield curve has only flattened by about a fifth as much as it did before the last two recessions (Chart). The ISM index, while softer, is still 14 points above the level typically associated with a broad economic pullback.
The IMF’s upgrade of its forecast for 2010 global growth also helped to ease gloom on Thursday. Part of the story there was China. With fiscal retightening set to slow growth in the indebted developed nations to a crawl of 2% or less next year, the global recovery’s prospects will rest even more on the shoulders of emerging market businesses and consumers. China’s GDP report will indicate whether those in one key market are up to the task.
49th parallels
Any country living beside an economic and cultural colossus tends to shore up its separate identity by emphasizing its differences and ignoring its similarities. Few nations have mastered this better than Canada, which for decades has seen itself as a kinder, gentler counterpart to the United States. But under Stephen Harper, Canada’s Conservative prime minister since 2006, the two countries have been converging. While Barack Obama has embraced policies that Canadians hold dear, such as near-universal health care and stricter financial regulation, Mr Harper has been importing many hallmarks of American Republicanism. Mr Obama’s expansion of government has generated a fierce backlash from the tea-party movement. Will Mr Harper suffer a similar rebellion in reverse?
Compare the Canada preparing to host the G8 and G20 summits later this month with that of 2002, the last time it hosted the G8, and the difference is clear. Back then the debate was about legalizing gay marriage, decriminalizing marijuana and how to attract more immigrants. Now it is about lowering taxes, and cracking down on crime and bogus refugees. Even abortion, a question settled two decades ago in Canada, has returned to the news.
This grittier mood is partly a function of the world financial crisis. But Mr Harper can also claim to have moulded it. He argues that Canadians are not as left-wing as their governments have been, and that it was conservative divisions that long gave the Liberals free rein to impose a “benign dictatorship”. …