Monday, March 09, 2009

Bank of Canada slightly optimistic, reports RBC

RBC reported that they felt the Bank of Canada was slightly optimistic in their outlook. The prime rate is now at a historic low of .5% which translated into unprecedented mortgage interest rates of 2.5% plus .7% for variable and fixed rates in the 3.5% range.

The full report is below.

All the best,
Mark

Bank of Canada in action!

The Bank of Canada cut the overnight rate by 50 basis points to 0.5% in early March and

made two uncharacteristically candid statements. First, the Bank vowed to maintain the

0.5% rate "at this level or lower" until the economy shows sufficient strength to close the

output gap, thereby mitigating the downside risks to the inflation outlook. Secondly,

policymakers indicated that they were contemplating adding stimulus to the economy

through some form of quantitative or credit easing, the details of their ruminations will be

announced in mid April.

There was a note of optimism in the statement as the Bank asserted that fiscal and

monetary policy stimulus will support the economy in the second half of the year. Additionally,

the Bank views Canada as being in a better position than most countries and

forecasts a stronger rebound once the global economy stabilizes. Our base case view is

that the amount of fiscal and monetary policy stimulus will return the economy's growth

rate to the positive column later this year but given the upheaval in the global economy,

a shift to less-traditional measures cannot be ruled out if the economy fails to revive.

The inclusion of the reference to quantitative and credit easing

indicates that the Bank is keeping its options open as it works to nurse the economy back

to health and that policymakers here are ready to follow the lead of the U.S., U.K. and

others in moving to more innovative ways to attack the problems.

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