Bank of Canada poised to hike interest rates next week for first time since 2010

[nuckin_futz]

July 7, 2017 7:31 am

Updated: July 7, 2017 7:37 am

New jobs numbers ‘cement the case’ for an interest rate hike next week: CIBC

 

Canada’s job market delivered another stellar performance in June by adding 45,300 positions, Statistics Canada said Friday.

 

The number, which vastly surpassed economists’ consensus expectation of 10,000 new jobs, increases the probability that the Bank of Canada (BoC) will raise interest rates at its next rate announcement on July 12.

 

“We had held on to our October forecast for a Bank of Canada rate hike, but concede that’s likely to end up off the mark, as today’s jobs numbers cement the case for the central bankers to raise rates in the coming week,” Avery Shenfeld, chief economist at CIBC Economics, wrote in a note to clients.

 

“The jobs market is tightening, and not that far from what historically has been judged as full employment. Over to you, governor Poloz.”

 

Full employment is a scenario in which virtually all Canadians who are willing and able to work are employed. Moving past full employment would create labour shortages, with more jobs available than there are workers able to fill them. Such a condition may lead employers to raise wages, which could contribute to inflation. Raising interest rates would help keep inflation in check.

 

The national unemployment rate dipped to 6.5 per cent from 6.6 per cent the previous month, according to StatsCan. That data point was also better than forecast, as analysts had expected joblessness to remain at 6.6 per cent.

 

The only sour note in the report was that the vast majority of the new jobs in June were in part-time work.

 

Still, the number of full-time positions also rose during the month. And full-time work made up most of the jobs growth over the past 12 months. Compared to June of last year, there are now 248,000 more full-time jobs, while part-time employment rose by 103,000 positions.

 

Quebec and British Columbia saw the biggest employment gains among the provinces in June, while employment held steady in Alberta.

 

Across the country, both the goods-producing and services sectors saw employment gains. The goods sector added 16,000 jobs, mostly in agriculture, while the services sector added 29,200 positions, thanks to a large employment boost in professional, scientific and technical services.

 

Hourly wages for all employees grew 1.3 per cent year-over-year in June, matching the same increase reported for May, the agency said. The number of hours worked last month increased 1.4 per cent, up from a 0.7 per cent gain in May, it added.

 

The June jobs report adds to a series of positive economic signals over the past year and reinforced the view among most analysts that the BoC will hike rates next week.

“The last domino just fell,” Douglas Porter, chief economist at BMO Financial Group, wrote after the release of the report.

 

The central bank said on June 12 that the economy was showing signs of “moving past” the oil shock that prompted two interest rate cuts in 2015. Rates have held at 0.5 per cent since then, but many economists expect a hike of 0.25 of a percentage point next week.

 

The bank has since hinted at an interest rate increase several times over the past few weeks.

 

Although inflation is still low in Canada, BoC Gov. Stephen Poloz told German business daily Handelsblatt on July 4 that the bank would need to act on interest rates well in advance of seeing an actual increase in the general level of prices.

 

“If we only watched inflation and reacted to inflation, we would never reach our inflation target, we’d always be two years behind in the reaction,” Poloz said.

 

In other words, he added, “when you are driving toward a red stoplight, you ease up on the accelerator well before you get there instead of waiting for the last second to stop.”

According to economists, the June jobs report is one more sign that the Canadian economy is gaining speed and might be in need of a gentle deceleration.

 

http://globalnews.ca/news/3581950/jobs-report-june-interest-rate-canada/

 

**********************

 

The rate is expected to rise .25% from the current .5% to .75%

[Warhippy]

Good.

 

a full percent by this time next year would be good.

 

I know it would bury a lot of people but if you cannot live within your means, need 3 trips to warmer places a year grabbed a mortgage that was way outside of your pay grade refuse to bag your lunches for work and need to eat out all the time while leasing a new car very year or two

 

You kinda deserve it

[Tre Mac]

Hike that mother, I'm talking sky high.

[Rick Blight]

This is being done to appease the U.S. with NAFTA negotiations and nothing more.

All of our levels of government are in serious debt and the higher interest rates will mean higher taxation rates to service the debt. This country is not ready for higher rates unless this is a one and done rate increase.

[Lancaster]

1 hour ago, Warhippy said:

Good.

 

a full percent by this time next year would be good.

 

I know it would bury a lot of people but if you cannot live within your means, need 3 trips to warmer places a year grabbed a mortgage that was way outside of your pay grade refuse to bag your lunches for work and need to eat out all the time while leasing a new car very year or two

 

You kinda deserve it

A little harsh.... but true.  

[Warhippy]

4 hours ago, Lancaster said:

A little harsh.... but true.  

I agree it is.  Even half a percent will bury a few thousands honest good people who have been forced to live on credit just to get by.

 

But a lot of the problem is over consumption.  people living beyond their means have helped fuel this low interest craze.  Constantly borrowing, fueling the market in an economic recession.  People purchasing and living so far beyond their pay grade it's disturbing

 

We ALL know at least 1 person who is constantly travelling, always in a new vehicle, always out drinking or eating in restaraunts.  Who has a serving position or is in the service industry or other lower paid field.

 

These are the people that will suffer the most and I feel nothing for their incoming plight.  before my accident I made good scratch, I still lived frugally with my wife.  Afterwards it was a slap in the face having to live on my savings for almost 2 years without any income except what i'd saved and what my wife was making at Safeway as an assistant manager.  We thought we lived frugally yet had fun.  Turns out we could cut a LOT of excess from our lives.  $5 coffees/teas movie nights outside of matinee nights.  Renting films or the like.

 

People can save literally everywhere but don't and when the inevitable happens to those who refused to.  Meh, those who did will be well positioned.

[Harvey Spector]

Anyone with a fixed rate mortgage that locked in for 5 years will not be affected.  Also, even if they bump up the prime rate by 25 basis points there is no guarantee that the fixed rates on mortgages will go up.  It all depends on the the Government of Canada bond market as fixed rate mortgages are tied to 5 year bond yields.  There is normally a spread of around 120 basis points between the two so you'd want to follow the bond yields and see if they rise or not before we can deduce whether fixed rate mortgages will go up.

 

However people with HELOC mortgages, i.e. secured line of credit mortgages against their home, will be affected as well as people with unsecured line of credit debt.  25 basis points won't be a deal breaker though.  You would need at least a 75 basis point increase in the prime rate before there is any sort of panic out there.

[PhillipBlunt]

7 hours ago, Warhippy said:

I agree it is.  Even half a percent will bury a few thousands honest good people who have been forced to live on credit just to get by.

 

But a lot of the problem is over consumption.  people living beyond their means have helped fuel this low interest craze.  Constantly borrowing, fueling the market in an economic recession.  People purchasing and living so far beyond their pay grade it's disturbing

 

We ALL know at least 1 person who is constantly travelling, always in a new vehicle, always out drinking or eating in restaraunts.  Who has a serving position or is in the service industry or other lower paid field.

 

These are the people that will suffer the most and I feel nothing for their incoming plight.  before my accident I made good scratch, I still lived frugally with my wife.  Afterwards it was a slap in the face having to live on my savings for almost 2 years without any income except what i'd saved and what my wife was making at Safeway as an assistant manager.  We thought we lived frugally yet had fun.  Turns out we could cut a LOT of excess from our lives.  $5 coffees/teas movie nights outside of matinee nights.  Renting films or the like.

 

People can save literally everywhere but don't and when the inevitable happens to those who refused to.  Meh, those who did will be well positioned.

Agreed.

[TGokou]

Say what you will about wanting interest rates increases of 0.75-1% but it's not gonna happen. BoC is not that stupid to throw everything away. In fact I believe it's a one and done unless the economy is doing so well that they are forced to increase. Most I see is a 0.5% increase by end of next year.

[Mainly Mattias]

going to be hard for those spending more than 40% of their income on housing.. buying is several hundred of thousands in a mortgage so probably a lot of people in the lower mainland would hurt.

[nuckin_futz]

BoC hikes interest rate for first time in seven years

 

OTTAWA -- The Bank of Canada has hiked its benchmark interest rate to 0.75 per cent from 0.5 per cent, its first increase in nearly seven years, amid expectations of stronger economic growth this year.

 

Such a move is bound to increase the costs of mortgages, home equity lines of credit and other loans linked to the big bank prime rates.

 

The Bank of Canada cut interest rates by a quarter of a percentage point twice in 2015 to help the economy deal with a plunge in oil prices, but governor Stephen Poloz said Wednesday that adjustment has been made.

 

"The economy can handle very well this move we have today and of course you need to preface that with an acknowledgment that of course interest rates are still very low," Poloz told a news conference in Ottawa.

 

"People need to understand that in the full course of time I don't doubt that interest rates will move higher, but there's no predetermined path in mind at this stage."

He said any future changes to the central bank's key interest rate will depend on economic data in the months ahead.

 

Economic growth is broadening across industries and regions, and therefore becoming more sustainable, the bank said, with both the goods and services sectors expanding.

 

Bank of Montreal chief economist Doug Porter said he expects the next rate hike will occur in October, but wouldn't rule out such a move at the central bank's next scheduled announcement on Sept. 6.

 

"And so the tide begins to turn," Porter wrote in a brief note to clients. "The overall tone of the statement and the bank's updated forecast are on the upbeat side of expectations."

 

In its outlook for the Canadian economy, the Bank of Canada estimated growth to be 2.8 per cent this year, 2.0 per cent next year and 1.6 per cent in 2019. That compared with its April forecast for growth of 2.6 per cent this year, 1.9 per cent next year and 1.8 per cent in 2019.

 

The rate increase, the first since September 2010, was widely expected by economists following "hawkish" comments by Poloz and senior deputy governor Carolyn Wilkins in recent weeks.

 

The hike comes as inflation remains below the bank's two per cent target. But it said it believes the recent softness is temporary, with the effects of food price competition, electricity rebates in Ontario and changes in automobile pricing expected to fade. The bank expects inflation to ease further this year due in part to Ontario electricity rebates, but return close to two per cent by the middle of next year.

 

The Bank of Canada said it also anticipates exports to pick up in the coming quarters and make an increasing contribution to growth, while business investment is also expected to rise.

 

Consumer spending is expected to continue to be a significant contributor to the economy, but the bank said it believes high levels of household debt and a slowdown in the housing market will weigh on spending.

 

The announcement follows signs that the housing market, a key economic driver in recent years, is adapting to government changes meant to cool the real estate sectors of Toronto and Vancouver and help improve financial stability.

 

"Looking ahead, residential investment is anticipated to contribute less to overall growth," the bank said. "Macroprudential and housing policy measures, as well as higher longer-term borrowing costs resulting from the projected gradual rise in global long-term yields, are all expected to weigh on housing expenditures."

 

http://www.ctvnews.ca/business/boc-hikes-interest-rate-for-first-time-in-seven-years-1.3499141

 

*********************************

 

This is a very hawkish hike. There is no indication this is "one and done" or even "two and done".

 

[aGENT]

On 7/9/2017 at 3:08 PM, TGokou said:

Say what you will about wanting interest rates increases of 0.75-1% but it's not gonna happen. BoC is not that stupid to throw everything away. In fact I believe it's a one and done unless the economy is doing so well that they are forced to increase. Most I see is a 0.5% increase by end of next year.

1/4 % now and another 1/4 % in the 4th quarter of this year is what's expected. I agree, this is not enough to cause some massive collapse etc. We're bound to see a slow climb over the next few years back in to 5%'ish territory as long as the economy supports it.

 

That's hardly earth shattering. The sky won't be falling. At least not from small, gradual interest rate hikes.

 

On 7/10/2017 at 0:09 AM, Mainly Mattias said:

going to be hard for those spending more than 40% of their income on housing.. buying is several hundred of thousands in a mortgage so probably a lot of people in the lower mainland would hurt.

 

 

[TGokou]

Don't forget that people who are having their term come up probably locked in at much higher rates back in 2011-2012. With the mortgage partially paid down they could theoretically renegotiate for lower payments.

[Grapefruits]

On 7/12/2017 at 10:24 PM, TGokou said:

Don't forget that people who are having their term come up probably locked in at much higher rates back in 2011-2012. With the mortgage partially paid down they could theoretically renegotiate for lower payments.

Yep. My current mortgage is over 1% less than my mortgage rate in 2011.

[almo89]

On 7/7/2017 at 9:27 AM, Warhippy said:

Good.

 

a full percent by this time next year would be good.

 

I know it would bury a lot of people but if you cannot live within your means, need 3 trips to warmer places a year grabbed a mortgage that was way outside of your pay grade refuse to bag your lunches for work and need to eat out all the time while leasing a new car very year or two

 

You kinda deserve it

Unfortunately you are right. Me and my gf haven't bought a place yet because after all of the number crunching we concluded that if the interest rates went up, we might not be able to afford it. To play it on the safe side, we decided that renting is still the better option. It's a sad truth and I have friends that just bought their first place.

[nuckin_futz]

The Bank of Canada surprises with a rate hike

9/6/17

 

The Bank of Canada unexpectedly hiked its key interest rate by 25 basis points to 1.00% on Wednesday, citing stronger than expected economic data.

 

The majority of economists surveyed by Bloomberg forecast that the central bank would hold at this meeting.

 

"Recent economic data have been stronger than expected, supporting the Bank's view that growth in Canada is becoming more broad-based and self-sustaining," the bank said in the accompanying statement.

 

The bank also said that although the global economy is seeing stronger than expected growth indicators there are "significant geopolitical risks and uncertainties around international trade and fiscal policies remain, leading to a weaker US dollar against many major currencies."

 

Wednesday marks the bank's second consecutive rate hike. At its previous meeting in July, the BoC raised its key rate for the first time in seven years, also by 25 basis points.

 

Investors had been expecting the bank to hike one more time this year, said Craig Erlam, senior market analyst at OANDA, in emailed comments ahead of Wednesday's rate decision. However, most thought the rate hike would come later in the year, not at the September meeting.

 

Looking forward, the BoC suggested that there could be more rate hikes in the future. 

 

"While we can’t rule out another rate hike before the end of this year, we should note that the economy is still overly dependent on the heavily indebted household sector to support economic growth," said David Madani, senior Canada economist at Capital Economics, in emailed comments. "That was possible when housing prices were rising rapidly and interest rates were at record lows. But both of those supports are clearly fading."

 

"With the housing market teetering even before rates began to rise, we expect the economy to lose momentum before the year is over, prompting the Bank to abort its rate hike cycle."

 

The Canadian dollar shot up after the announcement. It was stronger by 1.1% at 1.2238 at 10:05 a.m. ET after holding little changed ahead of the decision.

 

http://www.businessinsider.com/boc-bank-of-canada-interest-rate-decision-september-2017-2017-9

[taxi]

The CAD is also up to 82 cents. 

[apollo]

On 7/7/2017 at 9:27 AM, Warhippy said:

Good.

 

a full percent by this time next year would be good.

 

I know it would bury a lot of people but if you cannot live within your means, need 3 trips to warmer places a year grabbed a mortgage that was way outside of your pay grade refuse to bag your lunches for work and need to eat out all the time while leasing a new car very year or two

 

You kinda deserve it

To be fair all those things you mentioned aside from the 3 trips to warmer places directly go back into our own economy and are taxed.

 

The trips are also taxed pretty heavily (minus everything you spend abroad) 

I see what you're saying but I have friends that have 50-100K in student loans and this is pretty brutal.

 

Man... I really wish I locked a 5 year fixed mortgage and bought a place last year... hindsight 

[Kragar]

1 hour ago, apollo said:

To be fair all those things you mentioned aside from the 3 trips to warmer places directly go back into our own economy and are taxed.

 

The trips are also taxed pretty heavily (minus everything you spend abroad) 

I see what you're saying but I have friends that have 50-100K in student loans and this is pretty brutal.

 

Man... I really wish I locked a 5 year fixed mortgage and bought a place last year... hindsight 

I'm not sure what taxes have to do with this.  People living beyond their means, no matter how it is being done, is what is hurting them.  You dig too big a hole, it makes it pretty tough to dig yourself out.  It doesn't matter if they borrow for school, a car, a trip, or whatever.  If they don't have a realistic plan to pay it back, and fast, the loan is going to have a big impact on their future.

 

[Shift-4]

3 hours ago, taxi said:

The CAD is also up to 82 cents. 

And I just happen to be planning a last minute trip south