Tuesday, March 09, 2010

RBC is suggesting some caution be exercised with regards to the global economy

The RBC is suggesting some caution be exercised with regards to the global economy. Growth was not as great as expected.

Here is their report:

The consensus view that the global recovery has legs appears to be building after stronger than expected fourth-quarter growth data from some major economies. Dampening the mood among global investors, however, are worries about sovereign debt ratings and uncertainty surrounding the effect of upcoming regulatory reforms.

In most countries, central banks are implementing a gradual withdrawal of stimulus through the unwinding of either liquidity or credit programs. In Australia, the RBA restarted its rate normalization program earlier this week as worries about recent
rate hikes negatively affecting the economy proved to be unfounded. In Canada, the Bank held the policy rate steady and reiterated a commitment to hold it steady until the end of the second quarter of 2010.

It also acknowledged that the economy had strengthened in the final quarter of 2009 and the core inflation rate was running hotter than expected. To our mind, these changes along with the dropping of any reference to further easing signal that the Bank is preparing to start the process of rate normalization this summer.


South of the Canadian border, some Fed members exercised a significant degree of caution when discussing the outlook over the past month. FOMC members appear to have gone out of their way to reign in expectations of rate hikes by keeping the focus on the unwinding of liquidity and credit provisions.

The mid-February announcement of a 25 basis point increase in the discount rate was presented as being part of the program toward, “further normalization of the Federal Reserve’s lending facilities.” This sentiment was echoed by the Fed’s Duke who said the discount rate change did not “signal any change in the outlook for monetary policy.” U.S. policymakers have read more here:

Toronto Real Estate Board Average Prices and Graph

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