We recently had a chance to chat with a senior Canadian economic policymaker. Among other topics — he estimated fiscal stimulus would boost growth by around half a percentage point in 2016 and by a full percentage point in 2017 — we discussed his belief the depreciation of Canada’s currency could help export growth offset some of the weakness in the oil economy. What follows is an attempt to assess Canada’s progress so far.
For context, the Canadian dollar has lost about 21.5 per cent of its value against the currencies of its trading partners since the most recent peak in mid-2011, although the loonie had dropped as much as 31 per cent before the recent rally in risky assets:
We want to highlight a speech from the Bank of Canada’s Timothy Lane on Monday. Whilst the conclusions are not particularly new, Lane makes several points that can’t be repeated enough.
Start with his description of how changes in monetary policy affect the economy: Read more
In this guest post, Alex Bellefleur, global macro strategist at Pavilion Global Markets, writes that the Bank of Canada was prudent to loosen monetary policy in response to the decline in oil prices.
Last week the Bank of Canada (BOC) surprised markets by cutting interest rates 25 basis points, leaving them at 0.75%. While some argue this move was unnecessary, we are of the view that the cut is needed as a pre-emptive manoeuvre to counter private sector deleveraging. Read more
The Canadian central bank surprised markets this week by cutting its base rate by 25 basis points. Jon Hartley, co-founder of Real Time Macroeconomics, argues that the Canadian central bank’s decision to cut interest rates will exacerbate the Canadian housing bubble and wasn’t needed to offset the fall in the oil price.
Early this week, the Bank of Canada unexpectedly announced a change in its key benchmark interest rate for the first time in four years. However, rather than raising its benchmark interest rate as Fed has said it intends to do later this year, Canada’s central bank has lowered its overnight interest rate by 25 basis points to 0.75%. Read more
The Bank of Canada cut rates yesterday and the European Central Bank announced its sovereign bond-buying scheme today. In both cases, there were sharp responses in the currency markets, but they seem to have cancelled each other out:
Central banks are just full of surprises these days, from Mumbai to Zurich to Copenhagen. Today, Ottawa:
The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada…The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the Bank’s monetary policy response… Read more
Canada’s housing market could be as much 30 per cent overvalued; the share of new mortgages that are subprime is rising rapidly; and Canadian household are already among the most indebted in the rich world. Other than that, what else is there to worry about?
Quite a bit, according to the Bank of Canada’s latest “Financial System Review,” which was published on Wednesday: market illiquidity, foreign capital flight, hazards involving synthetic ETFs, and cybersecurity breaches are all discussed. For now, however, we want to focus on the vulnerabilities of Canadian households to the frothiness of the housing market in the Great White North. Read more
BoE governor-to-be Mark Carney made a speech titled ‘Guidance’ last night. It was all about communications strategies, for both companies and central banks — a very interesting topic for students of monetary Jedi tactics.
Carney stressed at the beginning that his talk would be about guidance, and not containing guidance. Tee hee! However, he did drop the N-bomb and when a central bank governor talks in positive terms about a non-mainstream monetary policy framework, it’s… interesting. Read more
Do not Forseke me, oh my darling, as Frankie Lane might have sung, had he been an Alliance Trust shareholder. That’ll be Karin Forseke, the new chairman, and next Friday is High Noon (GMT) as the outlaws from Laxey Partners renew their efforts to shoot their way into the Dundee citadel of Britain’s largest investment trust. Colin Kingsnorth and his gang have already spurred Alliance into a frenzy of activity, overturning the habit of several lifetimes and buying in shares for cancellation, but now the gang is demanding a “comprehensive review of the company”.
There is something to be said for this. Alliance has struggled to make its diversifications (including the excellent Alliance Trust Savings) into profit centres, and even if ATS finally does turn the corner, it will be years before it has any impact on Alliance’s net asset value, the measure by which investment trusts are judged. The suspicion remains that its moves away from managing the main fund are to give the executives under Katherine Garrett-Cox the prospect of growing the business. Read more
The Bank of Canada raised its trend-setting interest rate on Tuesday for the second time in less than two months despite growing uncertainty over the domestic and global economic outlook, the FT reports. Even as the bank lifted its overnight lending rate to 0.75 per cent from 0.5 per cent, it said that it expected the recovery in Canada to be more gradual than projected in the spring.
Echoing across the world on Monday — the sound of the dollar taps being turned on. Again.
From the Federal Reserve: Read more
Mark Carney, a former managing director in Goldman Sachs’ Toronto office, was named Thursday as successor to David Dodge as governor of the Bank of Canada. Mr Carney, 42, is the latest in a string of investment bank alumni – most of them from Goldman’s – to occupy prominent policymaking positions around the world. Others include Hank Paulson, US Treasury secretary; Mario Draghi, governor of the Bank of Italy; and David Walton, a member of the Bank of England’s monetary policy committee. Mr Carney, who holds a PhD in economics from Oxford University, is currently the finance department’s senior associate deputy minister, the third highest-ranking official. He was a Bank of Canada deputy governor 2003-04.