Market Looks for BoC Rate Cut

Bank-of-CanadaRecession” is the word of the day.  “Tight credit” is a phrase in close second. 

While these descriptors are aimed at the U.S. economy, they’ve nonetheless got more and more Bay Street pro’s expecting a Canadian rate cut.

Here’s how the market is voting at the moment (see CEP story):

  • 0.25% rate cut by Oct. 21:  100% chance
  • 0.25% rate cut by year end:  100% chance
  • 0.50% rate cut by July 2009:  100% chance

These figures are based on a snapshot of overnight index swap (OIS) rates.  OIS rates are basically a reflection of how traders are betting on the Bank of Canada’s future intentions. (Note: These are “implied” probabilities and not actual probabilities.)

It’s still worth noting, however, that Canada’s latest GDP and inflation numbers are strong.  The BoC is basically being pulled in two directions. Which direction it picks, we won’t know for sure until on October 21 (maybe before, but unlikely).

The Bank of Canada last cut rates in April.

  1. The last time I recall that 12 of 12 economists were calling for a rate cut there was no movement. I wouldn’t put 100% on anything, it would seem 12 out of 12 is actually 99%.

  2. Hi Traciatim,
    Thank you. You raise a very good point as these figures can be sometimes be misleading.
    100% in this case is the “implied” probability based on where OIS’s are trading. It’s not the actual probability. As you correctly allude, this is an important distinction to make, and we’ve added a note to the story accordingly.
    Have a great weekend,
    Rob

  3. Do other brokers think this cut rate will get some more business in the door? Here is most of the comments I get from prospects or clients right now.
    For the past month, no one wants to buy a home because of the uncertainty of rates. No one wants to dip into their equity for renos or big purchases, as they are not sure if their home will still have that value in a year from now. Not to mention LTV rates have changed for refi’s. The only ones that are financing are people who have to as their term is up…but they seem to be staying with their current lenders.
    Any suggestions on other markets to target?
    Frusterated broker…going broke!

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