Bank of Canada

Two former rate-raisers are now holding their interest rates, meaning all of the G7 countries are now on hold.

Australia is holding its cash rate at 4.75 per cent, confirming a slow and steady approach to normalisation, following a rapid set of increases from its low of 3 per cent in late 2009. Is the RBA anticipating worsening terms of trade with China? That’s what the FT’s Lex suggested today, calling the Australians “smart” to prepare for the change ahead.

Canada, which cut rates lower and started raising later, is sticking at 1 per cent for its overnight rate and 1.25 per cent for its bank rate (graphed). The Bank cited “increased” risks, saying that weaker exports were dragging down growth. Read more

Canada’s central bank is the latest to ask whether central banks should expand their remit beyond inflation targeting. “If we look only at interest rates, inflation and output, we may miss bubbles and other elements of systemic risk as they build,” Canada’s deputy central bank governor said on Tuesday.

Tiff Macklem said the Bank needed to develop models that include elements of banking and capital markets. “When the financial system is not working normally,” he said, “we cannot rely on the short-cut from interest rates to output and inflation.” The WSJ recently reported the Fed was also developing a more comprehensive model, the Quantitative Surveillance Mechanism (QSM)Read more

Consumer prices rose 1.7 per cent in Canada in the 12 months to August, close to the Bank’s 2 per cent target but a 0.1pp fall from July. Core prices (excluding energy) rose to a healthy 1.6 per cent. Many had expected CPI to rise.

The fall in inflation, though slight, would support the idea of a rate pause. The Bank of Canada raised rates on September 8, despite issuing a pretty gloomy outlook on the economy. This rate rise – which came after the end of the inflation period – will likely dampen inflation further in the coming months.

The Bank of Canada has raised the target for its overnight rate 25bp to 1 per cent, and its bank rate to 1.25 per cent, in spite of a rather bearish outlook:

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated.  Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields. Read more

Canada was the first G7 country to start raising rates, and has enjoyed consistent growth for nine months, bar a static April. Latest data show slight growth in May of 0.1 per cent.

However, data show non-farm payrolls fell in May by 0.2 per cent, or 25,000 people. To add to the mixed picture, the central bank reduced growth forecasts 10 days ago, even as it raised rates, and three days later, inflation fell to just 1 per cent. It seems Ben Bernanke’s oft-quoted description of unusual uncertainty, would apply equally well north of the border.

Canadian consumer price inflation has once again touched one of its target boundaries (2 per cent +/- 1 per cent). Consumer prices rose 1 per cent in the 12 months to June, following a 1.4 per cent increase in May.

Energy prices explain most of the drop. Energy prices rose 1.3 per cent between June 2009 and June 2010, having increased 6.2 per cent in the 12 months ending in May. Excluding energy, the CPI advanced 0.9 per cent in June, compared to 1 per cent in May. Read more

G20 nations must implement policies agreed at the latest summit, otherwise “large imbalances may re-emerge, with the attendant risk of disorderly adjustment.”

This from the Bank of Canada’s latest Monetary Policy Report, which finds Canadian growth “proceeding largely as anticipated” and risks to Canada’s economy roughly balanced. Read more

As expected, the Bank of Canada has just raised its overnight lending rate to 0.75 per cent, its bank rate to 1 per cent and its deposit rate to 0.5 per cent. Growth forecasts were reduced, however, and the bank now expects the economy to return to full capacity at the end of 2011, two quarters later than anticipated in April:

“The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.” Read more

Canada’s is the third central bank in a week to cite increased downside risks to the economy. “The overall level of risks to Canadian financial stability has increased” in the past six months said the Bank of Canada’s financial stability review. Read more

“Fortune favours the bold,” the Bank of Canada governor said today, exhorting Canadian businesses to invest and engage with the new ‘multi-polar’ world, and promising to deliver price stability in return.

Perhaps it is this upbeat, confident tone that has convinced investors of further planned rate rises. For convinced they are, if swap rates are anything to go by. Canada’s six- and twelve- month overnight index swap rates have risen to their highest levels since 2008 this week, reports Business WeekRead more

By Bernard Simon in Toronto

Markets were watching the Bank of Canada’s interest rate announcement this morning for signs whether Mark Carney, the bank’s governor, would assert his independence from other central banks by raising rates, or stick to the message that this is no time for monetary tightening.

Mr Carney has done a little of each.

On one hand, the bank has raised its key overnight lending rate by a quarter percentage point to 0.5 per cent, the first rate increase by a G8 central bank since the onset of the global recovery, and the first in Canada since mid-2007.

However, the bank cautioned that further increases could not be taken for granted. Read more

By Bernard Simon in Toronto

Mark Carney has not faced a decision whether to raise interest rates since he took the reins at the Bank of Canada in February 2008. But he will on Tuesday when the bank issues its regular monetary-policy reviewRead more

By Bernard Simon

The Bank of Canada has signalled it is likely to raise interest rates in the next few months in response to unexpectedly strong domestic growth, including a housing boom that has shown signs of developing into a speculative bubble. Read more

Simone Baribeau

If all goes well in the post-recovery world, the Americans will be saving and the Chinese will be buying, according to Paul Jenkins, Senior Deputy Governor of the Bank of Canada.

In a speech today, Mr Jenkins spelled out Canada’s view of the world’s economic future. He predicts industrial economies have a potential growth rate of between 2 and 2.5 per cent and emerging-market economies have a rate of between 5 and 8 per cent. Emerging markets’ growth will so far outstrip developing countries growth, he says, that by 2020 emerging-market economies will likely account for over 55 per cent of global output, compared with 45 per cent today.

And emerging-markets won’t just be producing more, they’ll be consuming more too. Read more

Simone Baribeau

From a speech by Mark Carney, Governor of the Bank of Canada

I am reminded of a story told to me by Jean-Claude Trichet, President of the European Central Bank. A mutual colleague, at the start of the crisis, was visiting a small village in the Scottish highlands. He was bereft of his BlackBerry and was anxious for the latest financial news. He entered a newsagent and asked for the Financial Times.
- The shopkeeper said, “Would you like yesterday’s paper or today’s?”
- Given the weight of events, he answered without hesitation, “I would prefer today’s.”
- To which the shopkeeper replied, “Then come back tomorrow.”
In today’s world, policy-makers cannot wait until tomorrow. They must act immediately. To do so effectively, they need guiding principles.

Simone Baribeau

The US may be struggling to fill the vacant seats on the Federal Reserve’s board, but Canada is on the ball.

Today, the Bank of Canada announced that Jean Boivin would replace David Longworth as deputy governor and member of the governing council at the beginning of April. Separately, the Bank announced that another deputy governor, Pierre Duguay, will retire in July. Any bets on whether we’ll know who will fill that seat before any Fed governors are appointed?

Meanwhile, some background on Mr BoivinRead more

Simone Baribeau

The Bank of Canada today released its semi-annual financial system review, finding that the Canadian financial system’s vulnerability to adverse shocks decreased modestly since its last report in June.

But the country – whose banks weathered the financial crisis without any infusion of government money – has not radically changed its conservative outlook. “Over the medium term, vulnerabilities associated with global financial and economic imbalances and household indebtedness will emerge as the most prominent risks to the Canadian financial system,” the report said. Read more