Interest Rate Catalysts

We’ll likely see no further Bank of Canada rate hikes till spring, and probably no more US rate increases “before 2012…”

That summarizes Desjardins’ interest rate call from its latest Economic and Financial Outlook.

Yves_St-Maurice_Desjardins Yves St-Maurice, Desjardins’ Director and Deputy Chief Economist, elaborated on that view, and provided some excellent background on factors which shape the direction of Canadian interest rates.  If you’re a student of interest rate behaviour, this interview is worth a read.

See:  Yves St-Maurice Interview

  1. This was highly informative. Thank you. I had one question however. Yves prediction of a 6.20% prime rate reflects a big rise from today’s 3%. What would happen to variable rate payments if prime went that high? Would it be better to go into a five year fixed if this forecast proves true? Thank you. Vicky

  2. This is only my opinion but I see no way that bond yields can stay this low. 2.10% is a depression level yield. Things are not great, but they are not that bad either. I think rates today are a gift and home buyers have no idea how lucky they are.

  3. Let me justify by saying that Carney’s “code” is plain and clear. Interest rates are too low and borrowing is at alarming rates. He’s not going to sit back while Canadian’s borrow their brains out anymore. It’s not a B of C mandate, but too bad. It’s the reality of these new times. Curb the borrowing, spell it out to consumers that the party is over before it gets out of hand (already is, but that’s okay, we “needed” it to escape the depression). We spread deficit spending across all of the people instead of just across the government balance statement. It’s all the same…time to tighten up and get ride of that uncertainly about keeping rates low. If we keep getting reports like this, we’ll see BoC tighten even more. Stop the borrowing – that’s the message.
    Read patterns in the language – it’s all there.

  4. Containing inflation takes precedence over everything else at the BOC. Keep watching US GDP and inflation. Growth forecasts are so low today that rates will soar once those two numbers exceed expectations twice in a row.

  5. I agree with you on Carney’s code, but I still don’t think the rate hikes are a given.
    Aren’t there other things that he (and the government) can do to slow down borrowing other than lift the O/N rates (i.e. make more April 19th-like rules).
    Also, the debt to income ratio has been dropping (albeit only 4 ish percent), but still dropping. I think people are starting to get the message and paying down some debt.

  6. Tom has right idea but wrong (in my opinion) result.
    Inflation is No.1 importance, no doubt about it. Then there is the general growth in the economy and employment.
    Lets looks at each – inflation is tame (and getting tamer), growth has stalled (in fact July estimates are that it could be NEGATIVE) and employment numbers have gone from excellent to extremely lacklustre of late.
    So, there are ZERO of the key drivers for making the case to raise rates further at this stage.
    I agree that you don’t want borrowing to get out of hand but these 3 Rate drivers I just listed tend to take precedence over borrowing and if all 3 are going in the other direction, then you simply cannot keep raising rates, especially when few other countries are (and the major trading partner the USA is nowhere near raising rates yet).
    I think the BoC could be on hold for much longer than people think.
    Look at the long yerm Bond yields. They are blatantly telling us something, and that is that long term growth prospects are poor at best and that inflation is not anywhere to be seen.
    Fighting Deflation is the main topic in the USA these days and although that hasn’t hit Canada yet (because our Housing and jobs numbers have ben better up until this point) it doesn’t take much to tip the balance and Canada rarely diverges very far from the USA over a longer period of time.
    I say that BoC will be on the sidelines from now, right through 2011 (which will be a tough year, flirting with double dip scenario) and some way into 2012 before the ‘green shoots’ of recovery really and truly take hold.

  7. The government could tighten on borrowing, but with a minority, it’s hard to get things going. I still think more rate increases, until borrowing stops, then people still need that shove. I do agree on the mandates and all look like the BoC shouldn’t raise rates, but I think that things are different right now, at least that’s what Carney has been hinting at. It’s all about the patterns.

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