Mortgage Logic

Bank Rates – US & Canada – March 2013

This month on its scheduled announcement date (March 6th) the Bank of Canada (BoC) again decided to leave its key overnight lending rate alone.  It has been two and a half years since it has adjusted the rate that directly impacts the Prime Rate of interest, (which directly affects all businesses and consumers).  BoC's rate policy is now tracking more closely than ever to the US Federal Reserve's policy.  This was very evident in January when BoC fully aligned and acknowledged the earliest potential rate change / increase would be into 2014 - which the US Fed had already been communicating for awhile.  The BoC has more of an urge, than the US, to raise its key rate in order to give more breathing room for manipulating the economy going forward.   BoC’s problem is that the Canadian dollar is far less widely traded and it is considered a resource based currency making it more exposed to commodity prices and therefore more volatile.  Any central bank (BoC) rate increase would push up the relative value of the Canadian dollar and quickly slow exports and the economy.

On March 20th the Board of Governors of the US Federal Reserve decided to again leave their key rate unchanged, giving continued stability and consistency to their declared strategy.  Furthermore they said: "In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…"   With the US unemployment rate currently at 7.7% theUS bank rate will remain low for an indefinite period, likely doing the same to Canada’s key rate.

North America's superior central bank mechanisms are proving beneficial for navigating through the financial & economic crisis of the past five years.  The economic hangover that persists in Europe and other world economies proves this to be true, especially in light of the fact that the crisis originated from the US.

Buzz Grant, Mortgage Logic

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