I’m studying all day today so I have the possibility of posting this extra post concerning the Bank of Canada and another rate cut. The overnight lending rate is therefore cut by half to 0.5%.
According to the Bank of Canada, the Canadian economy could suffer more than predicted for the first half of 2009. However, they see the economic growth coming back in early 2010.
They think the economy should get better in 2010 and even though the overnight lending rate is very low, inflation rate should be maintained around 2%.
The Bank of Canada is also considering other methods to stimulate the economy such as a program of “credit and quantitative easing” announced Mark Carney. Since the room for another rate cut is almost nil, The Bank of Canada has to look at other “non traditional ways” to stimulate the Canadian Economy.
Providing additional monetary stimulus, The Bank would become a buyer in credit markets. Therefore, the price for corporate debts should decrease and this should help maintaining a little appeal in the middle of a global recession.
More details regarding such measures are to come in The Bank of Canada’s next report on April 23rd.
This is actually quite a challenge as Mr. Carney is trying to get Canadians out of its first recession for almost 2 decades. However, as long as the financial industry across the world is not stabilized, there is not much hope for an economic jump, even in Canada.
On a more positive note, The Bank of Canada think that the country has the necessary resources and the economic system strong enough to be part of the first country to get out of this global recession.
The good news is that all our banks declared profit for this year first quarter. I personally think that our banking system will be one of the reasons why our country will suffer less than other from this recession.
Most banks already confirmed that they will follow the trend and therefore, drop their prime rate by 0.5% to 2.5%. Even though variable rate credit such as HELOC have been increase to P+1, you still have the possibility to borrow at 3.5%, not bad, huh?
While a rate cut is good news for people in a good financial position (it is a perfect timing to borrow in order to buy productive assets or to pay off your debts faster… I’m doing both ;-), this is definitely not a good news for our economy.
Personally, it means that I can maintain my Smith Manoeuvre investment of $500 a month while paying down $650 per month in capital on my mortgage. This is quite a perfection situation for those who are in a position to benefit from such low interest rates. Borrow carefully and for the right reasons…
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