Category: Canada Prime

Canada Prime

BOC Hikes 75bp to 3.25%; Prime Follows

The Bank of Canada has announced it has:

increased its target for the overnight rate to 3¼%, with the Bank Rate at 3½% and the deposit rate at 3¼%. The Bank is also continuing its policy of quantitative tightening.

The global and Canadian economies are evolving broadly in line with the Bank’s July projection. The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices.

Global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy. Economic activity in the United States has moderated, although the US labour market remains tight. China is facing ongoing challenges from COVID shutdowns. Commodity prices have been volatile: oil, wheat and lumber prices have moderated while natural gas prices have risen.

In Canada, CPI inflation eased in July to 7.6% from 8.1% because of a drop in gasoline prices. However, inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services. The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July. Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched.

The Canadian economy continues to operate in excess demand and labour markets remain tight. Canada’s GDP grew by 3.3% in the second quarter. While this was somewhat weaker than the Bank had projected, indicators of domestic demand were very strong – consumption grew by about 9½% and business investment was up by close to 12%. With higher mortgage rates, the housing market is pulling back as anticipated, following unsustainable growth during the pandemic. The Bank continues to expect the economy to moderate in the second half of this year, as global demand weakens and tighter monetary policy here in Canada begins to bring demand more in line with supply.

Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.

Prime followed:

Well, Rob Carrick and Ryan Siever will be mad:

There’s a case to be made for banks giving borrowers a break when what is expected to be the biggest interest rate hike in 22 years is announced on Wednesday.

A brief flashback to 2015 is required to get the sense of this story. The economy back then was in the opposite shape of what it is now – weak enough to prompt the Bank of Canada to cut its trendsetting overnight rate by 0.25 of a percentage point in January and again in July.

The big banks hijacked part of that rate cut. While the overnight rate fell by a total 0.5 of a point, the banks cut their prime rate by cumulative 0.3 of a point. They held back the rest of the rate cut to build their revenues and profit.

There was a delay in reducing the prime when the Canada Overnight rate dropped 25bp to 0.75% in January 2015 and again when Canada Overnight dropped a further 25bp to 0.50% in July of that year.

Canada Prime

BoC Hikes Overnight Rate 100bp; Prime Follows

The Bank of Canada has announced it has:

increased its target for the overnight rate to 2½%, with the Bank Rate at 2¾% and the deposit rate at 2½%. The Bank is also continuing its policy of quantitative tightening (QT).

Inflation in Canada is higher and more persistent than the Bank expected in its April Monetary Policy Report (MPR), and will likely remain around 8% in the next few months. While global factors such as the war in Ukraine and ongoing supply disruptions have been the biggest drivers, domestic price pressures from excess demand are becoming more prominent. More than half of the components that make up the CPI are now rising by more than 5%. With this broadening of price pressures, the Bank’s core measures of inflation have moved up to between 3.9% and 5.4%. Also, surveys indicate more consumers and businesses are expecting inflation to be higher for longer, raising the risk that elevated inflation becomes entrenched in price- and wage-setting. If that occurs, the economic cost of restoring price stability will be higher.

Global inflation is higher, reflecting the impact of the Russian invasion of Ukraine, ongoing supply constraints, and strong demand. Many central banks are tightening monetary policy to combat inflation, and the resulting tighter financial conditions are moderating economic growth. In the United States, high inflation and rising interest rates are contributing to a slowdown in domestic demand. China’s economy is being held back by waves of restrictive measures to contain COVID-19 outbreaks. Oil prices remain high and volatile. The Bank now expects global economic growth to slow to about 3½% this year and 2% in 2023 before strengthening to 3% in 2024.

Further excess demand has built up in the Canadian economy. Labour markets are tight with a record low unemployment rate, widespread labour shortages, and increasing wage pressures. With strong demand, businesses are passing on higher input and labour costs by raising prices. Consumption is robust, led by a rebound in spending on hard-to-distance services. Business investment is solid and exports are being boosted by elevated commodity prices. The Bank estimates that GDP grew by about 4% in the second quarter. Growth is expected to slow to about 2% in the third quarter as consumption growth moderates and housing market activity pulls back following unsustainable strength during the pandemic.

The Bank expects Canada’s economy to grow by 3½% in 2022, 1¾% in 2023, and 2½% in 2024. Economic activity will slow as global growth moderates and tighter monetary policy works its way through the economy. This, combined with the resolution of supply disruptions, will bring demand and supply back into balance and alleviate inflationary pressures. Global energy prices are also projected to decline. The July outlook has inflation starting to come back down later this year, easing to about 3% by the end of next year and returning to the 2% target by the end of 2024.

With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today. The Governing Council continues to judge that interest rates will need to rise further, and the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation. Quantitative tightening continues and is complementing increases in the policy interest rate. The Governing Council is resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.

Prime followed:

Well, Rob Carrick and Ryan Siever will be mad:

There’s a case to be made for banks giving borrowers a break when what is expected to be the biggest interest rate hike in 22 years is announced on Wednesday.

A brief flashback to 2015 is required to get the sense of this story. The economy back then was in the opposite shape of what it is now – weak enough to prompt the Bank of Canada to cut its trendsetting overnight rate by 0.25 of a percentage point in January and again in July.

The big banks hijacked part of that rate cut. While the overnight rate fell by a total 0.5 of a point, the banks cut their prime rate by cumulative 0.3 of a point. They held back the rest of the rate cut to build their revenues and profit.

There was a delay in reducing the prime when the Canada Overnight rate dropped 25bp to 0.75% in January 2015 and again when Canada Overnight dropped a further 25bp to 0.50% in July of that year.

Canada Prime

BoC Hikes Overnight 50bp to 1.50%; Prime Follows

As noted in the June 1 Market Action Report, the Bank of Canada has announced it has:

increased its target for the overnight rate to 1½%, with the Bank Rate at 1¾% and the deposit rate at 1½%. The Bank is also continuing its policy of quantitative tightening (QT).

Inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food. In Canada, CPI inflation reached 6.8% for the month of April – well above the Bank’s forecast – and will likely move even higher in the near term before beginning to ease. As pervasive input price pressures feed through into consumer prices, inflation continues to broaden, with core measures of inflation ranging between 3.2% and 5.1%. Almost 70% of CPI categories now show inflation above 3%. The risk of elevated inflation becoming entrenched has risen. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well anchored.

The increase in global inflation is occurring as the global economy slows. The Russian invasion of Ukraine, China’s COVID-related lockdowns, and ongoing supply disruptions are all weighing on activity and boosting inflation. The war has increased uncertainty and is putting further upward pressure on prices for energy and agricultural commodities. This is dampening the outlook, particularly in Europe. In the United States, private domestic demand remains robust, despite the economy contracting in the first quarter of 2022. US labour market strength continues, with wage pressures intensifying. Global financial conditions have tightened and markets have been volatile.

Canadian economic activity is strong and the economy is clearly operating in excess demand. National accounts data for the first quarter of 2022 showed GDP growth of 3.1 percent, in line with the Bank’s April Monetary Policy Report (MPR) projection. Job vacancies are elevated, companies are reporting widespread labour shortages, and wage growth has been picking up and broadening across sectors. Housing market activity is moderating from exceptionally high levels. With consumer spending in Canada remaining robust and exports anticipated to strengthen, growth in the second quarter is expected to be solid.

With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further. The policy interest rate remains the Bank’s primary monetary policy instrument, with quantitative tightening acting as a complementary tool. The pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and inflation, and the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target.

Prime mostly followed:

Well, Rob Carrick and Ryan Siever will be mad:

There’s a case to be made for banks giving borrowers a break when what is expected to be the biggest interest rate hike in 22 years is announced on Wednesday.

A brief flashback to 2015 is required to get the sense of this story. The economy back then was in the opposite shape of what it is now – weak enough to prompt the Bank of Canada to cut its trendsetting overnight rate by 0.25 of a percentage point in January and again in July.

The big banks hijacked part of that rate cut. While the overnight rate fell by a total 0.5 of a point, the banks cut their prime rate by cumulative 0.3 of a point. They held back the rest of the rate cut to build their revenues and profit.

There was a delay in reducing the prime when the Canada Overnight rate dropped 25bp to 0.75% in January 2015 and again when Canada Overnight dropped a further 25bp to 0.50% in July of that year.

Canada Prime

BoC Hikes Overnight 50bp to 1.00%; Prime Follows

The Bank of Canada has announced it has:

increased its target for the overnight rate to 1%, with the Bank Rate at 1¼% and the deposit rate at 1%. The Bank is also ending reinvestment and will begin quantitative tightening (QT), effective April 25. Maturing Government of Canada bonds on the Bank’s balance sheet will no longer be replaced and, as a result, the size of the balance sheet will decline over time.

Russia’s ongoing invasion of Ukraine is causing unimaginable human suffering and new economic uncertainty. Price spikes in oil, natural gas and other commodities are adding to inflation around the world. Supply disruptions resulting from the war are also exacerbating ongoing supply constraints and weighing on activity. These factors are the primary drivers of a substantial upward revision to the Bank’s outlook for inflation in Canada.

The war in Ukraine is disrupting the global recovery, just as most economies are emerging from the impact of the Omicron variant of COVID-19. European countries are more directly impacted by confidence effects and supply dislocations caused by the war. China’s economy is facing new COVID outbreaks and an ongoing correction in its property market. In the United States, domestic demand remains very strong and the US Federal Reserve has clearly indicated its resolve to use its monetary policy tools to control inflation. As policy stimulus is withdrawn, US growth is expected to moderate to a pace more in line with potential growth. Global financial conditions have tightened and volatility has increased. The Bank now forecasts global growth of about 3½% this year, 2½% in 2023 and 3¼% in 2024.

In Canada, growth is strong and the economy is moving into excess demand. Labour markets are tight, and wage growth is back to its pre-pandemic pace and rising. Businesses increasingly report they are having difficulty meeting demand, and are able to pass on higher input costs by increasing prices. While the COVID-19 virus continues to mutate and circulate, high rates of vaccination have reduced its health and economic impacts. Growth looks to have been stronger in the first quarter than projected in January and is likely to pick up in the second quarter. Consumer spending is strengthening with the lifting of pandemic containment measures. Exports and business investment will continue to recover, supported by strong foreign demand and high commodity prices. Housing market activity, which has been exceptionally high, is expected to moderate.

The Bank forecasts that Canada’s economy will grow by 4¼% this year before slowing to 3¼% in 2023 and 2¼% in 2024. Robust business investment, labour productivity growth and higher immigration will add to the economy’s productive capacity, while higher interest rates should moderate growth in domestic demand.

CPI inflation in Canada is 5.7%, above the Bank’s forecast in its January Monetary Policy Report (MPR). Inflation is being driven by rising energy and food prices and supply disruptions, in combination with strong global and domestic demand. Core measures of inflation have all moved higher as price pressures broaden. CPI inflation is now expected to average almost 6% in the first half of 2022 and remain well above the control range throughout this year. It is then expected to ease to about 2½% in the second half of 2023 and return to the 2% target in 2024. There is an increasing risk that expectations of elevated inflation could become entrenched. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well-anchored.

With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further. The policy interest rate is the Bank’s primary monetary policy instrument, and quantitative tightening will complement increases in the policy rate. The timing and pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.

Prime followed:

Well, Rob Carrick and Ryan Siever will be mad:

There’s a case to be made for banks giving borrowers a break when what is expected to be the biggest interest rate hike in 22 years is announced on Wednesday.

A brief flashback to 2015 is required to get the sense of this story. The economy back then was in the opposite shape of what it is now – weak enough to prompt the Bank of Canada to cut its trendsetting overnight rate by 0.25 of a percentage point in January and again in July.

The big banks hijacked part of that rate cut. While the overnight rate fell by a total 0.5 of a point, the banks cut their prime rate by cumulative 0.3 of a point. They held back the rest of the rate cut to build their revenues and profit.

There was a delay in reducing the prime when the Canada Overnight rate dropped 25bp to 0.75% in January 2015 and again when Canada Overnight dropped a further 25bp to 0.50% in July of that year.

Canada Prime

BoC Hikes Overnight to 0.50%; Prime Follows

The Bank of Canada has announced it has:

increased its target for the overnight rate to ½ %, with the Bank Rate at ¾ % and the deposit rate at ½ %. The Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds on its balance sheet roughly constant until such time as it becomes appropriate to allow the size of its balance sheet to decline.

The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has increased. The situation remains fluid and we are following events closely.

Global economic data has come in broadly in line with projections in the Bank’s January Monetary Policy Report (MPR). Economies are emerging from the impact of the Omicron variant of COVID-19 more quickly than expected, although the virus continues to circulate and the possibility of new variants remains a concern. Demand is robust, particularly in the United States. Global supply bottlenecks remain challenging, although there are indications that some constraints have eased.

Economic growth in Canada was very strong in the fourth quarter of last year at 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed. Both exports and imports have picked up, consistent with solid global demand. In January, the recovery in Canada’s labour market suffered a setback due to the Omicron variant, with temporary layoffs in service sectors and elevated employee absenteeism. However, the rebound from Omicron now appears to be well in train: household spending is proving resilient and should strengthen further with the lifting of public health restrictions. Housing market activity is more elevated, adding further pressure to house prices. Overall, first-quarter growth is now looking more solid than previously projected.

CPI inflation is currently at 5.1%, as expected in January, and remains well above the Bank’s target range. Price increases have become more pervasive, and measures of core inflation have all risen. Poor harvests and higher transportation costs have pushed up food prices. The invasion of Ukraine is putting further upward pressure on prices for both energy and food-related commodities. All told, inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards. The Bank will use its monetary policy tools to return inflation to the 2% target and keep inflation expectations well-anchored.

The policy rate is the Bank’s primary monetary policy instrument. As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further. The Governing Council will also be considering when to end the reinvestment phase and allow its holdings of Government of Canada bonds to begin to shrink. The resulting quantitative tightening (QT) would complement increases in the policy interest rate. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.

Prime followed:

Canada Prime

BoC Cuts Policy Rates Another 50bp; Prime Follows

The Bank of Canada has announced:

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent. This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.

The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices. The pandemic-driven contraction has prompted decisive fiscal policy action in Canada to support individuals and businesses and to minimize any permanent damage to the structure of the economy.

The Bank is playing an important complementary role in this effort. Its interest rate setting cushions the impact of the shocks by easing the cost of borrowing. Its efforts to maintain the functioning of the financial system are helping keep credit available to people and companies. The intent of our decision today is to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy.

The Bank’s efforts have been primarily focused on ensuring the availability of credit by providing liquidity to help markets continue to function. To promote credit availability, the Bank has expanded its various term repo facilities. To preserve market function, the Bank is conducting Government of Canada bond buybacks and switches, purchases of Canada Mortgage Bonds and banker’s acceptances, and purchases of provincial money market instruments. All these additional measures have been detailed on the Bank’s website and will be extended or augmented as needed.

Today, the Bank is launching two new programs.

First, the Commercial Paper Purchase Program (CPPP) will help to alleviate strains in short-term funding markets and thereby preserve a key source of funding for businesses. Details of the program will be available on the Bank’s web site.

Second, to address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far, the Bank will begin acquiring Government of Canada securities in the secondary market. Purchases will begin with a minimum of $5 billion per week, across the yield curve. The program will be adjusted as conditions warrant, but will continue until the economic recovery is well underway. The Bank’s balance sheet will expand as a result of these purchases.

The Bank is closely monitoring economic and financial conditions, in coordination with other G7 central banks and fiscal authorities, and will update its outlook in mid-April. As the situation evolves, Governing Council stands ready to take further action as required to support the Canadian economy and financial system and to keep inflation on target.

Changes to prime have not been announced yet, but watch this space!

The Big Banks have followed with their prime rates – at least, according to the two announcements made public as of initial publication of this post. Sadly, we do not know what has been done with the banks’ top secret internal primes or the spreads to Prime that the average customer might see on his renewal notice.

Details are:

TD did not issue a press release, but did put out some puffery:

More help is here. Bank of Canada Governor Stephen Poloz and his team have been proactive and creative in their response to the pandemic, and today’s announcement continues this trend. The Bank of Canada not only sliced its policy rate back to 0.25%, but also delivered two new asset purchases programs, including quantitative easing ‘proper’, specifying that its purchases of Government of Canada securities will result in a larger balance sheet. These are welcome developments that, together with the string of liquidity and other measures of recent weeks, provide a solid backstop to the Canadian financial system. These actions should also reinforce the transmission of monetary policy, providing a fair bit of gas to the economic recovery when the pandemic is finally behind us.

Getting from here to there will not be easy, and so we should not be surprised to see further announcements in the coming weeks as markets digest the implications of the economic sudden stop (see our recent forecast update for our current estimates of the implications on growth and labour markets).

Looking ahead, in a break from past research and communications that had put negative interest rates on the table, Governor Poloz and his team have now seemingly ruled any further cuts out, referring to 0.25% as the effective lower bound. This had been hinted at by the Governor in recent weeks – and in the press conference following this morning’s rate decision the Governor noted that negative rates are still in the toolkit, but experiences in other countries have seen challenges to the financial system result from these policies.

Thus, while they’re not completely ruled out, the Governor’s view is that negative rates are “not sensible” at this stage. Clearly then, any further easing will take the form of increased purchases of government securities, and/or adjustments to other purchase programs to ensure that monetary stimulus is being transmitted fully to all corners of the financial system.

David Parkinson reports in the Globe:

With the Canadian government moving forward on a $52-billion emergency aid program, and with the Bank of Canada having already taken numerous steps in the past two weeks to address market liquidity, the bank decided the time was right to open its policy taps.

“A firefighter has never been criticized for using too much water,” Bank of Canada Governor Stephen Poloz said in a conference call with reporters on Friday.

However, Mr. Poloz made it clear that the bank has no intention of cutting its rate further, and rejected the idea of negative interest rates similar to those at the European Central Bank.

“At this stage, it would be not sensible to think of interest rates going lower than this. We consider this to be the effective lower bound,” Mr. Poloz said.

Canada Prime

BoC Cuts Policy Rates 50bp

The Bank of Canada has announced:

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¾ percent, effective Monday, March 16, 2020. The Bank Rate is correspondingly 1 percent and the deposit rate is ½ percent. This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices.

It is clear that the spread of the coronavirus is having serious consequences for Canadian families, and for Canada’s economy. In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy intensive regions.

The Bank will provide a full update of its outlook for the Canadian and global economies on April 15. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.

The Bank has also taken steps to ensure that the Canadian financial system has sufficient liquidity. These additional measures have been announced in separate notices on the Bank’s website. The Bank is closely monitoring economic and financial conditions, in coordination with other G7 central banks and fiscal authorities.

Changes to prime have not been announced yet, but watch this space!

Update, 2020-3-16 : The Big Banks have followed with their prime rates – at least, according to the two announcements made public as of initial publication of this post. Sadly, we do not know what has been done with the banks’ top secret internal primes or the spreads to Prime that the average customer might see on his renewal notice.

Details are:

Nichola Saminather remarks in the Globe:

During the Bank of Canada’s prior rate cuts, in January and July of 2015, the banks passed on only 30 basis points of the 50-basis-point cuts, but matched the central bank’s three quarter-percentage-point increases in 2018.

Canada Prime

BoC Cuts Policy Rates 50bp; Prime Follows

The Bank of Canada has announced:

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to 1 ¼ percent. The Bank Rate is correspondingly 1 ½ percent and the deposit rate is 1 percent.

While Canada’s economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding.

Before the outbreak, the global economy was showing signs of stabilizing, as the Bank had projected in its January Monetary Policy Report (MPR). However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.

In Canada, GDP growth slowed to 0.3 percent during the fourth quarter of 2019, in line with the Bank’s forecast, although its composition was different. Consumption was stronger than expected, supported by healthy labour income growth. Residential investment continued to grow, albeit at a more moderate pace than earlier in the year. Meanwhile, both business investment and exports weakened.

It is becoming clear that the first quarter of 2020 will be weaker than the Bank had expected. The drop in Canada’s terms of trade, if sustained, will weigh on income growth. Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments. In addition, rail line blockades, strikes by Ontario teachers, and winter storms in some regions are dampening economic activity in the first quarter.

CPI inflation in January was stronger than expected, due to temporary factors. Core measures of inflation all remain around 2 percent, consistent with an economy that has been operating close to potential.

In light of all these developments, the outlook is clearly weaker now than it was in January. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target. While markets continue to function well, the Bank will continue to ensure that the Canadian financial system has sufficient liquidity.

The Bank continues to closely monitor economic and financial conditions, in coordination with other G7 central banks and fiscal authorities.

As usual there are no details of how the voting went or any capsule description of the rationale for such dissent, as is routinely provided by professionally managed central banks such as the US Federal Reserve. It’s a pity that members of the grandiosely named Governing Council are so insecure!

The Big Banks have followed with their prime rates – at least, according to the two announcements made public as of initial publication of this post. Sadly, we do not know what has been done with the banks’ top secret internal primes or the spreads to Prime that the average customer might see on his renewal notice.

Details are:

Bill Curry and Matt Lundy report in the Globe:

Shortly after the decision, traders were pricing in a 75-per-cent chance the bank will cut rates again at its April 15 meeting.

Canada Prime

BoC Cuts Overnight Rate 25bp; Prime Eases 15bp

The Bank of Canada has 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.
…
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 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.

(Updated)
And the banks’ reaction is:

Canada Prime

Prime Drops to 2.85%

Following the Bank of Canada’s reduction of the overnight rate from 1.00% to 0.75%, discussed on January 21, there has now – at last – been a move by the banks to cut prime:

Canada’s biggest banks have started passing on some – but not all – of the Bank of Canada’s recent rate cut, lowering the interest charged to borrowers with loans and mortgages tied to the prime rate.

Royal Bank was the first to cut its prime rate when it announced it would go down to 2.85 per cent from three per cent, effective Wednesday.

The move was quickly matched by the Bank of Montreal, TD Bank and CIBC.
…
However, the big banks had been slow to match the cut with a reduction in their prime rates.

Spin Mortgage co-founder Steve Pipkey says the prime lending rate offered by Canadian banks usually moves in lockstep with the central bank’s overnight lending rate and it’s unusual for banks to only partially pass on the savings to consumers.

The most recent exception was in December 2008, when the central bank cut its key interest rate by 75 basis points. The banks responded at the time with a 50 basis point reduction to their prime rates.

Doug Alexander of Bloomberg comments:

There have been exceptions to the general rule of banks following the Bank of Canada. In December 2008, the Bank of Canada cut its overnight rate 75 basis points to 1.5 percent while the six large lenders cut their prime 50 basis points to 3.5 percent, creating a 2 percentage point margin between the two rates.

If today’s gap of 2.1 percentage point persists it would be the highest on a consistent basis since the Bank of Canada started shifting to the overnight rate as its target in 1994, according to Bloomberg data.