Poloz is hinting that rate hikes are coming and thats pushing the Canadian dollar up a bit:
The Canadian dollar climbed to a four-month high of 76.44 cents US after Poloz’s comments, which fed speculation about a rate increase as early as its next scheduled announcement in two weeks. The boost lifted the loonie from an average price of 75.83 cents US on Tuesday.
If the central bank increases its key rate, the big Canadian banks are expected to raise their prime rates, driving up the cost of variable rate mortgages, other loans and lines of credit tied to the benchmark rate.
Poloz credited the two rate cuts introduced by the bank in 2015 for helping the economy counteract the effects of the oil-price slump, which began in late 2014. The reductions also helped increase the speed of the adjustment, Poloz added.
“It does look as though those cuts have done their job,” said Poloz, who was in Portugal on Wednesday to participate in a forum hosted by the European Central Bank.
“But we’re just approaching a new interest rate decision so I don’t want to prejudge. But certainly we need to be at least considering that whole situation now that the capacity, excess capacity, is being used up steadily.”
Read the full article over at the Financial Post.
Southseacompany pointed out this article where Bank of Canada governor Stephen Poloz is reported to have said that low interest rates have done their job.
So what exactly was the job of low interest rates?
Three years ago the BOC was issuing warnings that real estate in Canada was as much as 30% overvalued in some markets and posed a threat to the financial system.
How’s that concern looking these days ?
Home Capital isn’t the only lender that’s worried about liquidity, southseacompany points out that EQ Bank has secured a 2 billion line of credit from the big banks “just in case”.
“The crisis at mortgage lender Home Capital is putting pressure on other Canadian lenders, who have seen their share prices drop, and — in some cases — depositors withdrawing their money.”
“That’s been the case with Equitable Bank, known online as EQ Bank, which on Wednesday announced it had secured a $2-billion line of credit, just in case, from Canada’s “big six” banks.”
Read the full article here.
You’d think that lending out money for real estate in Canada would be a no-lose deal, but Home Capital Groups shares collapsed 41% at open today:
The embattled lender announced early Wednesday Home Trust has a non-binding agreement in principle with an unnamed institutional investor for a $2-billion line of credit to be secured against mortgages. The agreement is expected to be finalized later in the day. Home Trust will have to pay the investor $100 million to tap the line of credit and interest will be charged at 10 per cent on outstanding balances.
Read the full article at BNN.
Canadians love debt that gets sunk into ever rising property prices and banks and other lenders have been happy to provide. As long as rates only go down this is a pretty good situation, but what if rates were to go the other way one day?
Financial companies have been more-than-willing lenders. But there are several reasons why Canadians have been such enthusiastic borrowers.
Last week, new figures showed that consumer lending now totals more than $2 trillion, a new record. As we reported last week, for every dollar of Canadians’ disposable income, they owe almost $1.67.
From the point of view of Canadians, money has never been so cheap. But the rising cost of housing, especially in the country’s biggest cities, has also drawn people into taking on more debt.
… Continue reading Debt addicts face painful withdrawal