“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 Week.
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 review.
It’s easier to ask for the benefit of the doubt than to give it.
In response to a question about the Greeks’ low opinion of the IMF, Youssef Boutros-Ghali, chairman of the International Monetary and Financial Committee, called on critics to “give the IMF the benefit of the doubt,” arguing that it is a changed institution.
So is the IMF giving the benefit of the doubt to those whose financial systems held up in the crisis but who are now pushing back against calls for reform? Doesn’t look like it.
Dominique Strauss-Kahn, IMF managing director, in an apparent swipe at the Canadas of the world, said that resisting co-ordinated reforms was “short-sighted”. Countries whose financial systems came close to collapse, would likely have, in the pre-crisis days, felt that they too needed no stronger regulation. If banks in those countries failed, Mr Strauss-Kahn argued, others could be similarly overly optimistic about the strength of their system.
A communique that more or less acknowledged disagreement over the great bank taxes debate and a Canadian finance minister, Jim Flaherty, thinking that the debate was swinging Canada’s (anti-bank levy, pro-contingent capital) way. I think one of two things could happen at this point:
1. The US and Europeans who support the bank tax will keep pushing it at G20 level, perhaps soft-pedalling until after the Canadian-hosted G7/G20 summit in June and then resuming the campaign in the second half of the year.
2. As Secretary Geithner suggested tonight, the US might just forge ahead anyway and hope that the rest of the world follows behind once they see what a great idea it is. My notes (not precise quote) say: “We are going to move in the US and I suspect you will find when other countries see what we do, they are going to take similar measures”.
Not entirely sure that 2. is a sustainable option, since other countries might well think it is worth taking the risk of funding a bank bailout down the line to steal business from American and European banks now. Then again, Canadian banks aren’t particularly known for buccaneering adventurism in other developed country markets (some are quite big in emerging markets), so perhaps they are an exception that can be tolerated without too much risk of being undercut. Japan, on the other hand, another opponent of bank taxes, could be a different matter.
By Alan Beattie and Tom Braithwaite in Washington
The proposal for a levy on banks’ balance sheets and profits was high on the agenda of the G20 grouping of nations after recommendations in a feasibility report by the International Monetary Fund, released earlier this week.
It seems Canadians were boosting sales near the border in the New York and Minneapolis Federal Reserve districts, according to the Federal Reserve’s Beige book, a periodic anecdotal assessment of regional economies.
No surprise – the loonie is at par with the dollar – but just one vivid example of the benefits of the falling greenback.
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.
Mark Carney, Governor of the Bank of Canada, today spoke on Canada’s response to the financial crisis. In a question and answer period after the speech, Mr Carney said (via Reuters):
Our view is that the first line of defense of financial stability is regulation and we would underscore the experience with Canada, Australia, other major inflation targeters has been that you can have your cake and eat it too — you can have price stability, you can have financial stability if you get the regulatory side right.
As the governor of the central bank in the only country in the G7 that avoided bailing out its banks, Mr Carney has good reason to tout his country’s success. But what if the crisis has yet to pass?
Action Economics said in a research note that it expected the Bank of Canada to begin increasing its main interest rate in July as the labour market continued to recover.
The general uptrend in hiring since last August will leave an upbeat outlook for Canada’s job market and broader economy that underpins expectations for BoC tightening to start in July.
We expect the BoC to hike rates 25 bps in July. The March announcement began to build the case for rate hikes in the second half of this year as the Bank is projected to move rates from currently extraordinary accommodative levels to merely accommodative levels. At the same time, the prominent role of monetary policy in the recovery and continued downside risks to growth and inflation back the maintenance of an 0.25% floor through Q2 of 2010 and a measured approach to second half tightening.
Action Economics predictions on Canadian tightening:
The central bank of Canada has decided to hold the overnight rate target at 0.25 per cent, and has reiterated its commitment to keeping it there till the end of Q2.
Growth has been slightly higher than expected: “the economy grew at an annual rate of 5 per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports,” said the Bank.