Rate Cut Expected on Dec. 9

Rates appear to be headed lower.  Bank of Canada chief Mark Carney had a press conference and speech earlier today.  He's a sample of what he said:

• "Further monetary stimulus will likely be needed"
• "Recession is a possibility for Canada." (consumer confidence is at its lowest since 1982)
• "We do see growth picking up in the second half of 2009."

BoC Deputy Governor Paul Jenkins concurred with Carney's rate outlook earlier this week when he said: "Some further monetary stimulus will likely be required to achieve our 2 percent inflation target over the medium term.''

Here's how the credit markets have responded:

• According to CEP, credit swap traders are "pricing in" a 100% chance of a 0.25% cut, and a 98% chance of a 0.50% cut by year-end.
• TD Securities expects a 1/2% rate cut on December 9
• Bloomberg says CIBC economist Avery Shenfeld believes "Carney may ease to 1.75% (from 2.25%) at his next decision on Dec. 9."
• 30-day bankers' acceptance rates (which sometimes lead prime rate changes) are now at 2.46%, down from:
• 2.52% on October 21  (the date of the BoC's last 1/4% rate cut); and,
• 3.05% on October 8  (the date of the BoC's previous 1/2% rate cut)
• The 5-year bond yield (which correlates with fixed mortgage rates) is now at 2.64%, down from 2.84% on October 21.

The Bank of Canada's next interest rate meeting is 20 days away.

More from the Financial Post and Globe & Mail...

Comments

[Jerry Hung]

Let it be a 50 basis cut

I wish the economy is in better shape to take a less cut, but that won't happen

[Terry]

It's only a matter of time before we and everyone else cut to zero.

[Jason]

How the rate could be down to zero? Am I getting paid by the bank if my variable rate is prime minus, ha ha......

[John]

Jason I think Terry is talking about the Bank of Canada overnight rate.

Japans overnight rate fell to 0% for a little while. Cant remember the year though.

[Terry]

What John said...

http://en.wikipedia.org/wiki/Zero_interest_rate_policy

[Mike]

Overnight lending rate are never equal to the prime business rate. with Overnight rate at 2.244%, and Prime business is at 4%, i wonder on further rate cuts by BOC, what sort of steps will Banks or Financial insitution take?

[Mike]

that being said, would anyone know how the prime business rate are determine and what sort of relationship it has with Overnight lending rate as Prime Rate seem to decline when Overnight rate are lower but why are they never equal is what i dont get.

Thanks

[Ava]

Further to some comments, do you think the Banks will follow suit against the overnight rate? I mean, we saw what they did in October by not initially dropping the prime. And we keep hearing about how they are not making any $$ on variables right now. Comments?

[Canadian Mortgage]

Hi Ava,

That's the million dollar question. There would be tremendous pressure for them to match the BoC but it would probably depend on their cost of funds at the time. Currently, short-term rates seem to be improving so hopefully this is a positive sign.

Rob

[Brent]

Its unfortunate, and near robbery, that for those in the enviable position, like me, of paying 3.5% on a variable mortgage, we would have to pay 2%+ more to lock in for 5 or more years. Trouble is, interest rates in the next few years might be in the double digit range!!! How do we proceed? Stay variable and pay it off quicker or lock in and pay the bank for the privilege of security?

[Nathaniel]

Brent: What information do you base your "double-digit" forecast on?