The Bank of Canada left rates unchanged with this morning’s rate announcement, as was expected. They signalled they intend to pause & see how the economy responds to the jumbo hikes from last year so nothing has really tipped the scales in either direction for them to make a move.
That said, it’s been an eventful month. Much of the upward rate pressure has been the extremely hawkish talk from the US Fed – the higher they go, the more pressure there is for Canada to raise to support our currency.
Just over a month ago bond yields started to drop significantly as the stability of the US banking sector came into question. The 16th largest bank in the US – Silicon Valley Bank – failed as their bond holdings were basically underwater & worth significantly less than what they paid for them. The mechanics behind that is when rates go up, bond values go down so all the rate hikes lead to a run on deposits, money getting pulled out as there were concerns about the bank having enough assets to pay them out & voila, the bank was shut down.
They weren’t the only one mind you & there was concern for the regional banking sector overall. The talk was that further rate increases would make this issue worse & could lead to a full blown crisis but that has since died down. The Fed raised 0.25% at their last meeting (0.5% was being floated around) & changed their guidance from being committed to “ongoing” rate hikes to “some additional hikes.. maybe.” Basically, they may raise. They may not, but overall they are easing off the brakes a bit. All in all it was a step in the right direction if you’re looking for rates to come down here.
In Canada, employment data continues to be strong & surprised to the upside, although, again, that is one of the most lagging indicators & the last shoe to drop when the economy enters recession.
Inflation continues to ease & the Bank expects CPI to fall quickly to around 3% by mid this year & decline to 2% by the end of next year.
One of the major challenges in getting inflation down & keeping it down is our recently announced federal budget. More spending & more debt will not help ease inflation any time soon. Cutting $500 cheques to help cover soaring prices of groceries does nothing to help bring down prices. Announcing a new tax free savings account for new home buyers goes directly in opposition to what the Bank of Canada is trying achieve, although I will say, if you qualify for that program, use it & I have some highlights of the program on my website you can check out. It is a really good program but make no mistake that is stimulus to a housing market the Bank of Canada wants to cool. All signs of our budget & immigration commitment point to higher inflation for longer.
In the near term, barring a crisis, there doesn’t seem to be any indication that rates will go up or down. Bond yields continue to bounce around & at this point it’s not looking like the Bank will start dropping until 2024 but it does look like we’re going to see fixed rates continue to settle lower here.
That’s it for today. If you have a mortgage coming up for renewal this year or are looking to buy & want to run your strategy by me, please get in touch as I’d love to hear from you. Thanks & have a great day.
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2023-04-12 09:00:502023-04-12 09:00:57Bank of Canada Rate Announcement – April 2023 – NO CHANGE
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2023-03-31 11:49:252023-03-31 11:58:50The New First Home Savings Account (FHSA)
For the first time in 12 months the Bank of Canada has NOT raised rates. They signalled a pause after the Jan meeting & held true today but it’s continued to be a really flippy floppy few months. Leading into Christmas bond yields were dropping & fixed rates were coming down. That reversed hard into the new year then returned to dropping below pre-Christmas levels. Enter Feb & another about face with upward pressure on rates & that’s where we still sit today. Over that time the market went from pricing in no more hikes with rates to start dropping late 2023 to then pricing in a potential hike before the fall with the Bank of Canada not dropping until 2024.
Part of the reason for the spike was job gains. Canada added 150k jobs in Jan which was 10 times the estimate, however that was driven by temporary, non permanent resident, non citizen workers to fill the large gap of job vacancies. The interpretation there is that is likely a 1 time boom & not something to read in to deeply on. It’s also important to note that when the economy slows, those temporary workers tend to go back to their home countries so not the best foundation for a robust growing economy. So Tiff has signalled a pause. What is the risk that could cause them to raise again? Inflation & the US FED.
On the inflation front, the good news there it came in softer than expected at 5.9% vs 6.1% expected & down from 6.3% in Dec. Food prices are still high at 10.4% year over year but who really eats food anyways..
The US Fed has recently upped their hawkishness & suggested a potential 50bps hike this month which could lead to a higher terminal rate then previously expected, put pressure on the loonie & pressure the Bank of Canada to take further action. Takeaways from today are that things are taking longer to play out. Still a lot of volatility with rates & the outlook continues to bounce around. At this point it’s looking like for the Bank of Canada to cut this year we would need a significant economic downturn but as of now it’s looking like no rate cuts until next year.
If you have a mortgage coming up for renewal this year get in touch with me today. It never hurts to get some rate holds in & have some irons in the fire as we see how the upcoming months play out. That’s it for me. Thanks for watching & have a great day!
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2023-03-08 08:46:422023-03-08 08:46:47Bank of Canada Update March – No Change
2023 starts off where it left off – the Bank of Canada raised interest rates this morning for the 8th consecutive meeting. The good news is it was only 0.25%. The pace has officially slowed. The next step is to pause. Then to drop – a ways away but this is a step in the right direction.
The wording to key on in this morning’s release was that if economic developments evolve in line with expectations they expect to “hold the policy rate at it’s current level.” That doesn’t mean this WILL BE the last hike. It means it COULD be the last hike. Taking that in & piling into risk assets is a great way to make sure this is NOT the last hike.
THE mistake just about everyone made last year, myself included, was underestimating central bank action. Rates were kept so low for so long that no one really believed we would see the about face & aggressive rate hikes that we ended up seeing. The reason being that it was obvious that would cause a world of economic pain & it most certainly is. The mistake was not recognizing that became the intention. That became the justification TO raise, not the reason NOT to.
Remember, the only tool the Bank of Canada has to bring down inflation is crushing the economy. They can’t create more goods. They can’t change government spending. They can, however, make borrowing so expensive that it results in people selling assets & cutting spending to kill demand. They want & need a recession. They want job losses. It just take time for the impact of raising to be felt throughout the economy & we are now into that point.
While 1 & 2 year fixed rates are still very high, 3, 4 & 5 year fixed rates have come down significantly in the last month. 5 year fixed rates are now in the mid 4% range & the trend, right now, is for rates heading in the right direction.
I’ve been getting a lot of questions on whether clients should be paying down their mortgages right now. If you’re in a variable rate, yes you 100% should as you get a guaranteed return & save on interest as soon as you make that extra payment.
If you’re in a fixed rate, though, & your rate is well under 4%, instead of paying down your mortgage, dump that cash into GICs. You can still get GIC rates of 5% or higher from places like EQ BANK so if that is higher than your mortgage rate, you can profit by continuing to borrow at your lower mortgage rate & earning a guaranteed return over 5%. Just make sure you aren’t locking in that investment beyond your mortgage term so that you have the option of paying down your mortgage prior to renewal if mortgage rates are still elevated at that time. If you have 8 months until mortgage renewal, don’t go into a 12 month GIC.
There are a lot of mortgage renewals coming in Canada this year & the vast majority of the industry does not understand some of the tricks on how to get better pricing on mortgage renewals. Please, if you have friends or family who have mortgages coming up for renewal, put them in touch with me. I won’t waste anyone’s time. I very often will help clients even if it means not working with me, but in a lot of cases we’re saving significant amounts by knowing how to structure the renewal properly. Give that gift to the people in your life this applies to & please put us in touch.
TAKEAWAYS
Variable rates & LOC rates increase by 0.25%
Bank of Canada signals this could be the last hike (barring surprises)
Fixed rates have started to come down
HAVE EXTRA CASH? Do this:
if in a Variable Rate Mortgage, consider paying down your mortgage.
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2023-01-25 08:22:472023-01-25 08:22:53Bank of Canada Raises 0.25% – January 2023
More pain this morning as the Bank of Canada surprises markets for the 2nd meeting in a row & raises 0.5% vs the market’s expectation of 0.25%. Last meeting consensus was expecting more & we got less. This week, the opposite. As of this morning market expectations are still for another 0.25% but as we’ve seen throughout this year, this can all change for better or worse. The Bank ended their release ambiguously stating they will be considering whether the policy interest rate needs to rise further. This is a change from their typical, “more action is needed,” line but as we saw today & throughout this year, be cautious with optimism with these guys, although it does appear we are very near the end here.
Inflation continues to come down but CPI inflation is still at 6.9% with core inflation around 5%. Canada’s 10s/2s yield curve, which gives an indication of future economic activity, is the most inverted since the early 1990s. In a health economy the curve slopes upwards, which points to economic growth into the future. When short term yields are higher than long term, the curve slopes downwards, which corresponds to periods of economic recession. The growth outlook is not good. Winter is coming.
A lot has been made over the last month of Central Bank action. The head of Australia’s central bank actually came out with an apology to people who took out mortgages last year under the guidance of rates being low until 2024. In Canada, for the first time ever our central bank ran a loss. Keep in mind that loss falls on the backs of tax payers & is looking to be something to the tune of a $10b loss – instead of collecting something around $3b annually from the Bank of Canada, we’ll be forking out approximately $7b overt the next 3 years. First time ever. Ever is a long time..
They also admitted they should have raised rates sooner but defended paying out $18.4m in bonuses to staff last year so more signs of how broken our world has become.
Prior to this morning, around 13% of all mortgages in Canada had passed their trigger rate, meaning their payments were not covering all the interest owed for that month. After today that number will be higher. If you’re in that boat, raise your payments, even if you have already. You want to delay the trigger situation as much as you can. Around 75% of mortgages in Canada this year were in variable rates, which, in a lot of situations had to do with broken policy pushing clients to going variable in order to have the lower stress test rate & qualify for their purchase. Also, in fairness, given the history of this central bank it was hard envision the hawkishness we ended up seeing.
Looking at my own business, what I got wrong was, we knew inflation was going to be an issue & that’s something I was talking about since 2020. We knew there was a ton of debt in the country & raising rates would be problematic, which it is & will continue to be, but what I underestimated was the level of damage that could occur between when they started raising & finished. I completely underestimated the level of pain & damage they would be willing to reign down & that is something I take very seriously. Myself & really everyone completely missed the boat on that. The conflict in Ukraine certainly didn’t help & looking back that seemed to be the point where the switch really flipped & that was used as the excuse to really move to significant increases, but whether that happened or not, inflation still would have been high & that’s not THE reason for this year.
Even though variable had been the better bet close to 90% of the time in Canada’s history, the take away for me is to really outline what could happen in that 1 time in 10 where it isn’t.
This is the last meeting for 2022. One that will surely be remembered for a long time. Next year the story will be when will rates start to drop but I would suspect mid to late 2023 before any relief comes on that front.
That’s it for me. Thanks for watching & please get in touch if you’d like to discuss.
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2022-12-07 09:36:062022-12-07 09:36:13Bank of Canada rate increase – 0.5% Dec 2022
“It is our intention to let inflation run hot.” Think about that. Think about that in the context of what’s happened this year. Think about how much inflation was juiced from keeping rates ultra low & using tax payer money to buy government debt in order to help fuel spending & liquidity, then flipping a switch & causing a world of pain on avg Canadians who followed your guidance, bought homes, took out debt on the basis of rates being low well into 2023 & then forcing a recession to fix that mistake.
It’s hard to imagine a 50bps hike somehow being good news, but believe me, it is. Consensus was for another 0.75% hike at today’s rate announcement & the Bank of Canada for the first time since January surprised to the downside. Coming into this meeting there were 1 – 1.25% in total hikes being priced in so we will see how that plays out over the next few months & whether those expectations come down following this morning. We’re not out of the woods yet but today was a positive move for getting some eventual rate relief.
This has been an incredibly difficult central bank to read this year, going from being ultra dovish, which means, favouring low rates & easy monetary conditions, to flipping a switch in April & going on an unrelenting war path, doing everything they can to engineer the recession that we’re frankly already in. GDP is 0 & if you back out immigration it’s been negative for a while. The risk that I think we’re likely to face is, following the tsunami of demand throughout the last 2 years, all that consumption was pulled forward which leaves a void. A void that’s surrounded by higher rates & higher cost of living.
I was listening to an interview with Stan Druckenmiller last month, billionaire investor & one of the brightest financial forecasters of the last few decades, liken the US Fed (and this applies to the Bank of Canada) to a kid driving a Porsche 200 miles an hour then not just taking his foot off the pedal but slamming on the brakes. What’s happened this year is causing a lot of shakiness around the world. The UK pension system almost blew up a few weeks back, followed by credit Suisse, with problems all over Europe. The US dollar is on a wrecking path. This is not a recipe for a soft landing & there are sure to be more fireworks to come here.
What tends to happen in rate hike cycles is they slow the hikes, which we’re hopefully starting to see today, then stop hiking, then move to dropping, which is looking like mid 2023, or at least, that’s when the bond market is pricing in relief & again you have to take these things with a grain of salt because at the end of the day they are just forecasts & not reality & can change.
Inflation came in above expectations last month which drove the 0.75% hike today projection leading into today but it is still continuing to trend down since it peaked in the summer. Expectations are for that to continue with inflation softening to 3% into the later half of next year. What’s going to be interesting is the stated focus on getting inflation to 2% (never mind it hasn’t been that low since March 2021). By the Bank’s own forecast that won’t happen until 2024, although not even a year ago their forecast was for 2% inflation by this time. What are we to read from that?
The Bank ended their announcement saying they will continue to take action as required to achieve the 2% target. They also highlighted stalled growth through this year into the 2nd half of next & in the post announcement presser openly discussed the likelihood of negative growth & basically a recession in the quarters ahead. Can you envision a scenario where economic data continues to decline as they continue to raise rates? This month we’ve started to see more political backlash against these moves & intuitively it seems unnecessary, but we really don’t know.
We’re likely to see at least 1 more rate hike coming up in Dec. If you’re in a variable rate mortgage, until rates start to drop, tighten up spending, avoid major purchases, be prepared for more pain even though today was a positive move. If you’d like to discuss any of this, please get in touch. Otherwise thanks for watching & see you in Dec.
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2022-10-26 09:26:042022-10-26 09:29:05Bank of Canada Rate Announcement – Oct 2022 – 0.5% increase
Bank of Canada Rate Announcement – April 2023 – NO CHANGE
/in Misc. /by adminGood morning,
The Bank of Canada left rates unchanged with this morning’s rate announcement, as was expected. They signalled they intend to pause & see how the economy responds to the jumbo hikes from last year so nothing has really tipped the scales in either direction for them to make a move.
That said, it’s been an eventful month. Much of the upward rate pressure has been the extremely hawkish talk from the US Fed – the higher they go, the more pressure there is for Canada to raise to support our currency.
Just over a month ago bond yields started to drop significantly as the stability of the US banking sector came into question. The 16th largest bank in the US – Silicon Valley Bank – failed as their bond holdings were basically underwater & worth significantly less than what they paid for them. The mechanics behind that is when rates go up, bond values go down so all the rate hikes lead to a run on deposits, money getting pulled out as there were concerns about the bank having enough assets to pay them out & voila, the bank was shut down.
They weren’t the only one mind you & there was concern for the regional banking sector overall. The talk was that further rate increases would make this issue worse & could lead to a full blown crisis but that has since died down. The Fed raised 0.25% at their last meeting (0.5% was being floated around) & changed their guidance from being committed to “ongoing” rate hikes to “some additional hikes.. maybe.” Basically, they may raise. They may not, but overall they are easing off the brakes a bit. All in all it was a step in the right direction if you’re looking for rates to come down here.
In Canada, employment data continues to be strong & surprised to the upside, although, again, that is one of the most lagging indicators & the last shoe to drop when the economy enters recession.
Inflation continues to ease & the Bank expects CPI to fall quickly to around 3% by mid this year & decline to 2% by the end of next year.
One of the major challenges in getting inflation down & keeping it down is our recently announced federal budget. More spending & more debt will not help ease inflation any time soon. Cutting $500 cheques to help cover soaring prices of groceries does nothing to help bring down prices. Announcing a new tax free savings account for new home buyers goes directly in opposition to what the Bank of Canada is trying achieve, although I will say, if you qualify for that program, use it & I have some highlights of the program on my website you can check out. It is a really good program but make no mistake that is stimulus to a housing market the Bank of Canada wants to cool. All signs of our budget & immigration commitment point to higher inflation for longer.
In the near term, barring a crisis, there doesn’t seem to be any indication that rates will go up or down. Bond yields continue to bounce around & at this point it’s not looking like the Bank will start dropping until 2024 but it does look like we’re going to see fixed rates continue to settle lower here.
That’s it for today. If you have a mortgage coming up for renewal this year or are looking to buy & want to run your strategy by me, please get in touch as I’d love to hear from you. Thanks & have a great day.
The New First Home Savings Account (FHSA)
/in Misc. /by adminBank of Canada Update March – No Change
/in Misc. /by adminFor the first time in 12 months the Bank of Canada has NOT raised rates. They signalled a pause after the Jan meeting & held true today but it’s continued to be a really flippy floppy few months. Leading into Christmas bond yields were dropping & fixed rates were coming down. That reversed hard into the new year then returned to dropping below pre-Christmas levels. Enter Feb & another about face with upward pressure on rates & that’s where we still sit today.
Over that time the market went from pricing in no more hikes with rates to start dropping late 2023 to then pricing in a potential hike before the fall with the Bank of Canada not dropping until 2024.
Part of the reason for the spike was job gains. Canada added 150k jobs in Jan which was 10 times the estimate, however that was driven by temporary, non permanent resident, non citizen workers to fill the large gap of job vacancies. The interpretation there is that is likely a 1 time boom & not something to read in to deeply on. It’s also important to note that when the economy slows, those temporary workers tend to go back to their home countries so not the best foundation for a robust growing economy.
So Tiff has signalled a pause. What is the risk that could cause them to raise again? Inflation & the US FED.
On the inflation front, the good news there it came in softer than expected at 5.9% vs 6.1% expected & down from 6.3% in Dec. Food prices are still high at 10.4% year over year but who really eats food anyways..
Takeaways from today are that things are taking longer to play out. Still a lot of volatility with rates & the outlook continues to bounce around. At this point it’s looking like for the Bank of Canada to cut this year we would need a significant economic downturn but as of now it’s looking like no rate cuts until next year.
If you have a mortgage coming up for renewal this year get in touch with me today. It never hurts to get some rate holds in & have some irons in the fire as we see how the upcoming months play out.
That’s it for me. Thanks for watching & have a great day!
Bank of Canada Raises 0.25% – January 2023
/in Misc. /by adminGood morning,
2023 starts off where it left off – the Bank of Canada raised interest rates this morning for the 8th consecutive meeting. The good news is it was only 0.25%. The pace has officially slowed. The next step is to pause. Then to drop – a ways away but this is a step in the right direction.
The wording to key on in this morning’s release was that if economic developments evolve in line with expectations they expect to “hold the policy rate at it’s current level.” That doesn’t mean this WILL BE the last hike. It means it COULD be the last hike. Taking that in & piling into risk assets is a great way to make sure this is NOT the last hike.
THE mistake just about everyone made last year, myself included, was underestimating central bank action. Rates were kept so low for so long that no one really believed we would see the about face & aggressive rate hikes that we ended up seeing. The reason being that it was obvious that would cause a world of economic pain & it most certainly is. The mistake was not recognizing that became the intention. That became the justification TO raise, not the reason NOT to.
Remember, the only tool the Bank of Canada has to bring down inflation is crushing the economy. They can’t create more goods. They can’t change government spending. They can, however, make borrowing so expensive that it results in people selling assets & cutting spending to kill demand. They want & need a recession. They want job losses. It just take time for the impact of raising to be felt throughout the economy & we are now into that point.
While 1 & 2 year fixed rates are still very high, 3, 4 & 5 year fixed rates have come down significantly in the last month. 5 year fixed rates are now in the mid 4% range & the trend, right now, is for rates heading in the right direction.
I’ve been getting a lot of questions on whether clients should be paying down their mortgages right now. If you’re in a variable rate, yes you 100% should as you get a guaranteed return & save on interest as soon as you make that extra payment.
If you’re in a fixed rate, though, & your rate is well under 4%, instead of paying down your mortgage, dump that cash into GICs. You can still get GIC rates of 5% or higher from places like EQ BANK so if that is higher than your mortgage rate, you can profit by continuing to borrow at your lower mortgage rate & earning a guaranteed return over 5%. Just make sure you aren’t locking in that investment beyond your mortgage term so that you have the option of paying down your mortgage prior to renewal if mortgage rates are still elevated at that time. If you have 8 months until mortgage renewal, don’t go into a 12 month GIC.
There are a lot of mortgage renewals coming in Canada this year & the vast majority of the industry does not understand some of the tricks on how to get better pricing on mortgage renewals. Please, if you have friends or family who have mortgages coming up for renewal, put them in touch with me. I won’t waste anyone’s time. I very often will help clients even if it means not working with me, but in a lot of cases we’re saving significant amounts by knowing how to structure the renewal properly. Give that gift to the people in your life this applies to & please put us in touch.
TAKEAWAYS
Bank of Canada rate increase – 0.5% Dec 2022
/in Misc. /by adminGood morning,
More pain this morning as the Bank of Canada surprises markets for the 2nd meeting in a row & raises 0.5% vs the market’s expectation of 0.25%. Last meeting consensus was expecting more & we got less. This week, the opposite. As of this morning market expectations are still for another 0.25% but as we’ve seen throughout this year, this can all change for better or worse. The Bank ended their release ambiguously stating they will be considering whether the policy interest rate needs to rise further. This is a change from their typical, “more action is needed,” line but as we saw today & throughout this year, be cautious with optimism with these guys, although it does appear we are very near the end here.
Inflation continues to come down but CPI inflation is still at 6.9% with core inflation around 5%. Canada’s 10s/2s yield curve, which gives an indication of future economic activity, is the most inverted since the early 1990s. In a health economy the curve slopes upwards, which points to economic growth into the future. When short term yields are higher than long term, the curve slopes downwards, which corresponds to periods of economic recession. The growth outlook is not good. Winter is coming.
A lot has been made over the last month of Central Bank action. The head of Australia’s central bank actually came out with an apology to people who took out mortgages last year under the guidance of rates being low until 2024. In Canada, for the first time ever our central bank ran a loss. Keep in mind that loss falls on the backs of tax payers & is looking to be something to the tune of a $10b loss – instead of collecting something around $3b annually from the Bank of Canada, we’ll be forking out approximately $7b overt the next 3 years. First time ever. Ever is a long time..
They also admitted they should have raised rates sooner but defended paying out $18.4m in bonuses to staff last year so more signs of how broken our world has become.
Prior to this morning, around 13% of all mortgages in Canada had passed their trigger rate, meaning their payments were not covering all the interest owed for that month. After today that number will be higher.
If you’re in that boat, raise your payments, even if you have already. You want to delay the trigger situation as much as you can. Around 75% of mortgages in Canada this year were in variable rates, which, in a lot of situations had to do with broken policy pushing clients to going variable in order to have the lower stress test rate & qualify for their purchase. Also, in fairness, given the history of this central bank it was hard envision the hawkishness we ended up seeing.Looking at my own business, what I got wrong was, we knew inflation was going to be an issue & that’s something I was talking about since 2020. We knew there was a ton of debt in the country & raising rates would be problematic, which it is & will continue to be, but what I underestimated was the level of damage that could occur between when they started raising & finished. I completely underestimated the level of pain & damage they would be willing to reign down & that is something I take very seriously. Myself & really everyone completely missed the boat on that. The conflict in Ukraine certainly didn’t help & looking back that seemed to be the point where the switch really flipped & that was used as the excuse to really move to significant increases, but whether that happened or not, inflation still would have been high & that’s not THE reason for this year.
Even though variable had been the better bet close to 90% of the time in Canada’s history, the take away for me is to really outline what could happen in that 1 time in 10 where it isn’t.
This is the last meeting for 2022. One that will surely be remembered for a long time. Next year the story will be when will rates start to drop but I would suspect mid to late 2023 before any relief comes on that front.
That’s it for me. Thanks for watching & please get in touch if you’d like to discuss.
Bank of Canada Rate Announcement – Oct 2022 – 0.5% increase
/in Misc. /by admin“It is our intention to let inflation run hot.” Think about that. Think about that in the context of what’s happened this year. Think about how much inflation was juiced from keeping rates ultra low & using tax payer money to buy government debt in order to help fuel spending & liquidity, then flipping a switch & causing a world of pain on avg Canadians who followed your guidance, bought homes, took out debt on the basis of rates being low well into 2023 & then forcing a recession to fix that mistake.
It’s hard to imagine a 50bps hike somehow being good news, but believe me, it is. Consensus was for another 0.75% hike at today’s rate announcement & the Bank of Canada for the first time since January surprised to the downside. Coming into this meeting there were 1 – 1.25% in total hikes being priced in so we will see how that plays out over the next few months & whether those expectations come down following this morning. We’re not out of the woods yet but today was a positive move for getting some eventual rate relief.
This has been an incredibly difficult central bank to read this year, going from being ultra dovish, which means, favouring low rates & easy monetary conditions, to flipping a switch in April & going on an unrelenting war path, doing everything they can to engineer the recession that we’re frankly already in. GDP is 0 & if you back out immigration it’s been negative for a while. The risk that I think we’re likely to face is, following the tsunami of demand throughout the last 2 years, all that consumption was pulled forward which leaves a void. A void that’s surrounded by higher rates & higher cost of living.
I was listening to an interview with Stan Druckenmiller last month, billionaire investor & one of the brightest financial forecasters of the last few decades, liken the US Fed (and this applies to the Bank of Canada) to a kid driving a Porsche 200 miles an hour then not just taking his foot off the pedal but slamming on the brakes. What’s happened this year is causing a lot of shakiness around the world. The UK pension system almost blew up a few weeks back, followed by credit Suisse, with problems all over Europe. The US dollar is on a wrecking path. This is not a recipe for a soft landing & there are sure to be more fireworks to come here.
What tends to happen in rate hike cycles is they slow the hikes, which we’re hopefully starting to see today, then stop hiking, then move to dropping, which is looking like mid 2023, or at least, that’s when the bond market is pricing in relief & again you have to take these things with a grain of salt because at the end of the day they are just forecasts & not reality & can change.
Inflation came in above expectations last month which drove the 0.75% hike today projection leading into today but it is still continuing to trend down since it peaked in the summer. Expectations are for that to continue with inflation softening to 3% into the later half of next year. What’s going to be interesting is the stated focus on getting inflation to 2% (never mind it hasn’t been that low since March 2021). By the Bank’s own forecast that won’t happen until 2024, although not even a year ago their forecast was for 2% inflation by this time. What are we to read from that?
The Bank ended their announcement saying they will continue to take action as required to achieve the 2% target. They also highlighted stalled growth through this year into the 2nd half of next & in the post announcement presser openly discussed the likelihood of negative growth & basically a recession in the quarters ahead. Can you envision a scenario where economic data continues to decline as they continue to raise rates? This month we’ve started to see more political backlash against these moves & intuitively it seems unnecessary, but we really don’t know.
We’re likely to see at least 1 more rate hike coming up in Dec. If you’re in a variable rate mortgage, until rates start to drop, tighten up spending, avoid major purchases, be prepared for more pain even though today was a positive move.
If you’d like to discuss any of this, please get in touch. Otherwise thanks for watching & see you in Dec.