The Canadian Imperial Bank of Commerce (CIBC) has trimmed 0.1 percentage points off a number of its residential mortgages, following similar moves on Thursday by several of the major banks, dropping the bank’s benchmark posted five-year fixed rate to 5.89 per cent.

CIBC is the latest Canadian bank to announce lower residential mortgage rates. RBC Royal Bank (TSX:RY), TD Canada Trust (TSX:TD) and Bank of Montreal (TSX:BMO) all lowered most their posted fixed-term mortgages by one-tenth of a point.

Canadian banks typically raise or lower their rates for fixed-term mortgages depending on bond markets, whereas variable-rate mortgages reflect adjustments on the banks’ prime rates.

Current CIBC Prime Rate as of June 25, 2010

• Six-month convertible 4.85 per cent, down 0.10 per cent
• Six-month open 6.70 per cent, no change
• One-year open 6.45 per cent, no change
• One-year closed 3.60 per cent, down 0.10 per cent
• Two-year closed 3.95 per cent, down 0.10 per cent
• Three-year closed 4.60 per cent, down 0.10 per cent
• Four-year closed 5.54 per cent, down 0.10 per cent
• Five-year closed 5.89 per cent, down 0.10 per cent
• Seven-year closed 6.95 per cent, down 0.10 per cent
• 10-year closed 7.00 per cent, down 0.10 per cent

These rates are effective Saturday, June 26, 2010.

About CIBC

CIBC (TSX, NYSE: CM) is a leading Canadian-based global financial institution. Through two major operating groups, CIBC Retail Markets and Wholesale Banking, CIBC provides a full range of financial service products and services to almost 11 million individual, small business and commercial, corporate and institutional clients in Canada and around the world.

The Canadian Bank of Commerce (The Commerce) opened for business on May 15, 1867 in Toronto. The head office and main branch were located on the corner of Yonge and Colborne in what would become Toronto’s financial district. The Honourable William McMaster, a prominent Toronto businessman and philanthropist, was the principal founder of the bank and its first president. Concerned about Montreal’s influence over the economy of Upper Canada, McMaster founded the bank mainly as competition for the Bank of Montreal. An aggressive businessman, he rapidly expanded the bank and its network of branches; by 1874 it had 24 branches, making it the largest bank headquartered in Ontario.

The Imperial Bank of Canada (The Imperial) opened in Toronto on March 18, 1875. Its original premises were located at 18 Toronto Street, not far from The Canadian Bank of Commerce. Henry Stark Howland, previously vice-president of The Commerce, was the principal founder and first president of the new bank.

Competition was fierce as banks raced to be the first in towns that were sprouting up in western Canada. The staff of the Vegreville, Alberta branch opened for business in an abandoned log and mud hut in September 1905. Not only did the hut act as a branch for the first two months, it was where the branch’s employees slept as well, and employees shared their sleeping bags with the garter snakes that moved in as the nights got colder. The branch soon moved from the mud hut to a homesteader cabin, and then to a pre-fabricated building in 1906.

Boyd Erman
Globe and Mail Update

After a year of making it easy by telling the market exactly what the Bank of Canada would do with borrowing costs by giving a commitment to keep them at emergency lows, Governor Mark Carney has rapidly switched tacks. The country’s top central banker is now confounding those who would try to predict exactly how fast interest rates will rise by refusing to give explicit guidance.

Yesterday’s quarter-point increase in the benchmark central bank rate and the accompanying statement show that the kind of transparency markets get from Mr. Carney as borrowing costs go up in coming months is going to be very different than what they have become used to over the first part of his tenure, when rates dropped to record lows and stayed there.

In this statement, Mr. Carney is being open but not predictable. He is laying out the parameters he is watching and leaving it to markets to try to figure out what that will mean for rates. It’s an education for investors and analysts, because this is the first time they have seen Mr. Carney raising borrowing costs.

“It’s going to be more fun being the central banker in this environment than being a forecaster,” said Mark Chandler, a rates strategist at RBC Dominion Securities who predicts “a whole bunch of angst” before every Bank of Canada rate announcement in coming months.

Just as the explicit commitment to keep rates low served a purpose by giving an uncertain economy some certainty, the new move to the other end of the predictability spectrum gives Mr. Carney the flexibility he needs to deal with a stop-and-go rebound in growth.

The economy posts a couple of hot quarters and inflation ticks up? Fine, a quarter point tighter it is. But then we wait and see.

This isn’t a normal recovery, so there’s no sign of the central bank’s normal language in a tightening cycle. Usually, there is wording foreshadowing a steady move higher, along the lines of “some further reduction of monetary stimulus will be required,” to quote a 2005 rate hike announcement. This time, the guidance is that “any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”

With that, Mr. Carney has established himself as neither hawk nor dove, just a pragmatist who watches the data and the markets and reacts.

Already, there are signs that the new strategy is a success. The market is re-evaluating its belief that more rate cuts are a sure thing.

Read more at:
www.theglobeandmail.com

More about forecasting interest rates:

Economists use a variety of techniques to forecast interest rates. The most basic is to use economics and history as a guide and to make a judgement about what an appropriate level of interest rates and their future course given the state of the economy and important economic variables. Since most economists disagree on how the economy works or what economic history means, this is more difficult than it seems.
See Schools of Economic Thought.

Quantitative economic statistical techniques called “econometrics” attempts to model the economy using mathematical and statistical relationships. A comprehensive model of the economy might have hundreds of equations and many variables. The problem with these techniques is that while they might have a “high explanatory power” or be “robust” historically against “back-tested” data after the fact, they are very poor at explaining the future before the fact.
See Econometric Techniques.

The reason for this inaccuracy is simple. Interest rates reflect human behaviour which is highly complex. This complexity has been compounded by the internationalization of economies and the financial markets. The direction of Canadian and U.S. interest rates is partially set by those of other countries, particularly Germany and Japan. Even governments miss their interest rate forecasts and they have control over their countries’ monetary and fiscal policy.

More about forecasting interest rates

The U.S. housing market will experience a second recession, forcing banks to post additional loan-loss reserves, said analyst Meredith Whitney, founder of New York-based Meredith Whitney Advisory Group, in an interview on CNBC Squawk Box, where she also talked about deflation in the economy, hinting that the housing crisis is far from over, due to strategic defaults, long term high unemployment, and increasing foreclosures.

“Most investors are not baking in a double-dip in housing,” Ms. Whitney said, “You’re going to see banks post additional reserves associated with this double-dip in housing, and that means weak performance going forward.”

U.S. home prices fell more than 30% from their peak in 2006 through the first quarter of 2009, prompting banks to take writedowns on mortgage loans. Housing starts have increased 24% since the low in April 2009 as mortgage rates remained near record lows and the U.S. government offered tax credits to home buyers.

Ms. Whitney said she didn’t foresee the trend of some homeowners paying off credit cards and other debt instead of making mortgage payments, as they await better terms on mortgage modification programs.

“Banks are actually accelerating their foreclosure programs, accelerating their short-sale programs. People who have been paying their mortgage now have to start paying rent. You’ll see a real leg down in supply displacement when you foreclose and you have to sell.”

Job cuts by state and local governments will also contribute to a “rough second half” for the U.S. economy, she said.

Financial reform will slow the velocity of money and cause “de-banking” as more Americans lose access to some banking services, making it “more expensive to be poor in this country,” Ms. Whitney said.

Meredith Whitney is a frequent contributor to CNBC, Fox Business, and Bloomberg News programs. Her extremely bearish view on banks landed her on the cover of the August 18, 2008 issue of Fortune Magazine. Even before the problems in September that befell Merrill Lynch and Lehman Brothers, she is quoted as saying, “It feels like I’m at the epicenter of the biggest financial crisis in history, however even a broken clock is right twice a day”.

In 2007, Whitney was listed as the second best stock picker in the capital markets industry on Forbes.com’s list of “The Best Analysts: Stock Pickers”, as well as being named “one of NY Post’s 50 Most Powerful Women in NYC.

Whitney, who was ranked as one of Fortune 500’s “50 Most Powerful Women in Business” in 2008, has also won CNBC’s “Power Player of the Year” over Jamie Dimon, Ben Bernanke, and Hank Paulson.