The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.

Global growth faltered in early 2015, principally in the United States and China.  Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity. Global growth is expected to strengthen over the second half of 2015, averaging about 3 per cent for the year, and accelerate to around 3 1/2 per cent in 2016 and 2017.

The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.  Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.

The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost. Recent evidence suggests a pickup in activity and rising capacity pressures among manufacturers, particularly those exporters that are most sensitive to movements in the Canadian dollar. Financial conditions for households and businesses remain very stimulative.

The Bank now projects Canada’s real GDP will grow by just over 1 per cent in 2015 and about 2 1/2 per cent in 2016 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.

The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Total CPI inflation is at 1 per cent, reflecting the drop in consumer energy prices. Core inflation has remained close to 2 per cent in recent months, as the temporary effects of sector-specific factors and pass-through of the lower Canadian dollar have offset the disinflationary forces from slack in the economy.

The Bank expects global growth to strengthen and average 3 1/2 per cent per year over 2015-17, in line with the projection in the January Monetary Policy Report (MPR). This is in part because many central banks have eased monetary policies in recent months to counter persistent slack and low inflation, as well as the effect of lower commodity prices in some cases. At the same time, economies continue to adjust to lower oil prices, which have fluctuated at or below levels assumed in the January MPR. Strong growth in the United States is expected to resume in the second quarter of 2015 after a weak first quarter.

The Canadian economy is estimated to have stalled in the first quarter of 2015. The Bank’s assessment is that the impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger. The ultimate size of this impact will need to be monitored closely. Underneath the effects of the oil price shock, the natural sequence of stronger non-energy exports, increasing investment, and improving labour markets is progressing. This sequence will be bolstered by the considerable easing in financial conditions that has occurred and by improving U.S. demand. As the impact of the oil shock on growth starts to dissipate, this natural sequence is expected to re-emerge as the dominant trend around mid-year. Real GDP growth is projected to rebound in the second quarter and subsequently strengthen to average about 2 1/2 per cent on a quarterly basis until the middle of 2016. The Bank expects real GDP growth of 1.9 per cent in 2015, 2.5 per cent in 2016, and 2.0 per cent in 2017.

The very weak first quarter has led to a widening of Canada’s output gap and additional downward pressure on projected inflation. However, the anticipated recovery in growth means that the output gap will be back in line with its previous trajectory later this year. Consequently, the effects on core inflation of the lower dollar and the output gap will continue to offset each other. As the economy reaches and remains at full capacity around the end of 2016, both total and core inflation are projected to be close to 2 per cent on a sustained basis.

Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected. The Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore is maintaining the target for the overnight rate at 3/4 per cent.

Bank of Canada maintains overnight rate target at 1 per cent     

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Inflation is close to the 2 per cent target and is evolving as the Bank anticipated in its July Monetary Policy Report (MPR). Recent data reinforce the Bank’s view that the earlier pickup in inflation was attributable to the temporary effects of higher energy prices, exchange rate pass-through, and other sector-specific factors rather than to any change in domestic economic fundamentals.

The global economy is performing largely as expected. The recovery in Europe appears to be faltering as the situation in Ukraine weighs on confidence. In the United States, a solid recovery seems to be back on track, with business investment now making a significant contribution to growth. Global financial conditions remain very stimulative and longer-term bond yields have eased even further.

In Canada, stronger growth in the second quarter has brought GDP to almost exactly the level the Bank had projected in July’s MPR. Canadian exports surged in the second quarter after a weak winter, supported notably by stronger U.S. investment spending and the past depreciation of the Canadian dollar. While an increasing number of export sectors appear to be turning the corner toward recovery, this pickup will need to be sustained before it will translate into higher business investment and hiring. Meanwhile, activity in the housing market has been stronger than anticipated. The Bank still expects excess capacity in the economy to be absorbed during the next two years.  

Overall, the risks to the outlook for inflation remain roughly balanced, while the risks associated with household imbalances have not diminished. The balance of these risks is still within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1 per cent. The Bank remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks.

Benjamin Tal Feb 2014 economic update (summarized bullet points):

• The Eurozone currently has a 25% unemployment rate overall, with a 50% unemployment rate among young people.  They have a very different culture, however, where not everyone has to be 100% independent and people just share and move in with one another if things get tight.
• He predicts that spending will increase in the Eurozone over the next 2 years
• He currently feels that Germany has the most attractive real estate market in the world
• He feels that days of massive increases with oil and commodity prices are over, and we will see those prices stabilize.
• The US is generating more jobs in higher paying sectors, instead of just more overall jobs.  This is creating more stability
• Delinquency rates in the US are back to normal, and credit scores are at an all time high.  People have not been spending for a number of years, and the lenders were not doing much lending.  As a result, the people are “starving”, and can’t wait to start spending again.  The banks will begin to open up due to higher credit scores and better quality jobs, so this will drive the economy going forward and likely cause interest rate increases.
• He doesn’t expect the Feds to touch interest rates until 2015 at the earliest
• Long term rates will likely top out about 80bps-90bps higher than today.  People need to remember that an increase from 2% to 4% is still a 100% increase in rates, which has major impact on the economy, so t keep that in mind when wondering how high rates will climb.
• Canada actually borrowed our way out of the recession.  As a result, we are carrying more debt than most countries coming out of a recession, making us more susceptible to rising interest rates.
• The US lowered debt levels during the recession, so they won’t feel the impact of rising rates as much as Canada will.
• He feels that the Canadian dollar had no business being at par with the US dollar, and actually belongs somewhere between $0.85 and $0.90.  The reason we got so high was that while the rest of the world was working through some very difficult times, Canada stood out as a stable place to invest money.  Now that things are improving in the Eurozone and US, we are seeing less investment in Canada, hence the dropping Canadian dollar.
• Before going into the recession in 2008, the US had build 60% more than Canada, and more importantly, had 33% of their mortgages in sub prime.  Sub prime mortgages in Canada only make up 5.8% of the total.
• 30%-35% of the overall housing market in BC is owned by investors.  The good news is that, while many of these investors are foreigners, only a small portion of them live elsewhere. 
• In Vancouver, more than 50% of the investors have no mortgage or have large down payments.  This shows commitment, and is good for long term housing prices.
• Vacancy rates are currently at 1.7% in Vancouver and will gradually lower.  A strong rental market like this encourages investors and brings stability to housing prices
• Canada’s young people have record high education at the same time as record poverty in these same people.  Education isn’t translating into high paying jobs right now.
• Home ownership rate has reached its peak as 1^st time home buyers are priced out of the market and are being forced to rent.

The government has announced, effective February 19, 2014, under the Property Transfer Tax (PTT) First-Time Home Buyers’ Exemption program, qualifying first-time buyers can buy a home worth up to $475,000. The previous threshold was $425,000.

The partial exemption continues and will apply to homes valued between $475,000 and $500,000.

With this change, the government estimates 1,700 additional first-time buyers will annually be eligible to save up to $7,500 in PTT when they buy their home.

The government estimates this measure will cost $8 million in lost tax revenue each year.

Ottawa –

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Inflation in Canada has moved further below the 2 per cent target, owing largely to significant excess supply in the economy and heightened competition in the retail sector. The path for inflation is now expected to be lower than previously anticipated for most of the projection period. The Bank expects inflation to return to the 2 per cent target in about two years, as the effects of retail competition dissipate and excess capacity is absorbed.

Global growth is expected to strengthen over the next two years, rising from 2.9 per cent in 2013 to 3.4 per cent in 2014 and 3.7 per cent in 2015. The United States will lead this acceleration, aided by diminishing fiscal drag, accommodative monetary policy and stronger household balance sheets. The improving U.S. outlook is affecting global bond, equity, and currency markets. Growth in other regions is evolving largely as projected in the Bank’s October Monetary Policy Report (MPR). Global trade growth plunged after 2011, but is poised to recover as global demand strengthens.

In Canada, growth improved in the second half of 2013. However, there have been few signs of the anticipated rebalancing towards exports and business investment. Stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment. Meanwhile, recent data have been consistent with the Bank’s expectation of a soft landing in the housing market and a stabilization of household indebtedness relative to income.

Real GDP growth is projected to pick up from 1.8 per cent in 2013 to 2.5 per cent in both 2014 and 2015. This implies that the economy will return gradually to capacity over the next two years.

Although the fundamental drivers of growth and future inflation appear to be strengthening, inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance. At the same time, risks associated with elevated household imbalances have not materially changed. Weighing these considerations, the Bank judges that the balance of risks remains within the zone articulated in October, and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks.

Andrew Coyne: Canadians aren’t getting the whole story on the economy
Andrew Coyne | 13/09/13 | Last Updated: 13/09/13 8:54 PM ET
 
Here’s a headline you probably didn’t see: Canadians Have Never Been Richer. Or this one: Household Net Worth Rises To All-Time High. Or this: Canadians Are Twice As Wealthy, After Inflation, As They Were Twenty Years Ago.
No, the headline you did see was something like this: Canadian Household Debt-To-Income Ratio Hits Record High. Canadian Household Debt Climbs. Canadians Go Deeper Into Debt.
It’s not that the latter headlines aren’t true. In fact, the ratio of household debt to disposable income did reach an all-time high in the second quarter, at 165.6%, bettering the previous records that had themselves inspired a thousand heavy-breathing headlines.
It’s just that they’re not the whole story. Merely reporting how much debt we are carrying, even relative to disposable income, tells us little. Without knowing how much we have in the way of assets, we have a very incomplete picture.
Anyone who’s ever bought a house knows this. If you take out a $300,000 mortgage to buy a $500,000 house, your debt may have gone up, but your financial position is unchanged: it’s the difference between the two, your net worth, that counts.
True, taking on debt puts you at some risk. Even with a fixed mortgage, your net worth can rise or fall, depending on whether your house appreciates or depreciates in value. But you’d think you’d at least want to know what it was. If you had to depend on the media, you’d be out of luck. Your house could have doubled in value, and all you’d know is that you had $300,000 in debt.
It’s not that these numbers are hard to find. Statistics Canada reports them at the same time and on the same page as the figures on household debt. What do they show? They show that in addition to liabilities of about $1.75-trillion, Canadian households also had assets worth roughly $9-trillion — more than five times as much.
All told, Canadians’ net worth stood at $7.263-trillion, or $207,300 per capita. Adjusted for inflation, that’s a new record. A decade ago, it was less than $150,000 per capita, in 2012 dollars. A decade before that, it was less than $100,000. That’s right: over the last two decades, Canadians’ per capita net worth has more than doubled, after inflation. Bet you didn’t read that story.
Of course, even if your assets exceed your debts, you still have to make the payments. But here again, debt-to-income doesn’t tell the whole story. You also need to know what interest rate you’re paying on the debt: it’s the combination of the two that dictates how much you pay every month. These figures, too, are readily available: the Bank of Canada calculates a “housing affordability index,” measuring mortgage payments, principal and interest combined, against disposable income. What does it show? At a ratio of less than 26% (as of the first quarter of this year) it is lower than it has been at virtually any time over the last 30 years — half what it was in the early 1990s, a third of its level in the early 1980s. But no, you haven’t read that anywhere, either, have you?
I wish I could say this was unusual. But it’s more or less a constant. It isn’t just the well-known observation known as Easterbrook’s Law — “all economic news is bad” — which holds that any economic development is bad news for somebody, and will be reported as such, even if it’s good news for everyone else. It’s that the good news as often as not gets flat out ignored. It just seems more compelling, more concerned, more responsible, to report that everything is getting worse, even if the facts show that at least some things are getting better.
Elsewhere I’ve pointed out that, contrary to everything you’ve read lately, poverty is declining in Canada, median incomes are rising, while inequality is steady or even falling. Again: these figures are easily available. But the same applies to a range of other data. How many stories have you read about youth unemployment (“Canada’s Youth Face Job Crunch” ), now at 14%? How many told you that that is in fact rather lower than it’s been at most times in the last 40 years?
Of course it would be better if it were zero, but numbers only have meaning relative to some benchmark. Indeed, the reason we say 14% is bad is because it’s worse than the overall rate of 7% — or because it’s worse than it was a few years ago, at the height of the expansion. But it’s at least as significant that it is better than it was in almost any year in the four decades before that.
Another example: the Canadian Centre for Policy Alternatives has just put out a study on tuition fees and student debt. Spoiler alert: it shows both are rising, as they have been for several years. In fact, Canada now has the fifth-highest post-secondary tuition fees in the OECD. That’s worth knowing, and raises legitimate fears that it might reduce accessibility.
But wouldn’t it also be worth knowing whether it has in fact, reduced accessibility? And would you be surprised to learn that, in fact, rates of enrollment have been climbing throughout this period: that, from 2000 to 2010, while the population aged 18-21 increased by 12%, enrollment in post-secondary education increased by 38%?
Yes, I’m guessing you would.

Finance Minister Jim Flaherty said he isn’t planning new measures to restrain the country’s housing market because his past four rounds of action have already worked to avoid a bubble.

“So far, I’m satisfied that we have a balance in the real estate sector,” Flaherty told reporters in Wakefield, Quebec, at the start of a policy retreat with business leaders. “There are some bumps along the road in Toronto and Vancouver, in particular in the condo markets, but overall, I’m satisfied,”

Flaherty has warned consumers to avoid mortgages that could become unaffordable when borrowing costs rise, after Canadians took on record household debts relative to disposable income.

Flaherty said that “we have been watching the condo market and the housing market very closely for at least five years.” He also said that he does have “contingency plans” he can use if the need arises.

The Bank of Canada has identified household finances as the biggest risk to the domestic economy, while Governor Stephen Poloz has said there are recent signs of a “constructive evolution” in that area.

Flaherty today also reiterated his own commitment to pare the federal budget deficit and spoke out against the extraordinary monetary stimulus seen in the U.S. and Europe.

“We are going to balance the budget without doubt in 2015,” Flaherty said, adding that this will “put Canada in a position of strength” to react to any future global weakness