Calling trust in BoC into question

Calling trust in BoC into question

Calling trust in BoC into question The biggest news wasn’t the rate cut; it was the way in which the central bank implemented it – and what it may signify for future interest rates, according to one industry leader.

Canadian financial services industries were abuzz following the Bank of Canada’s announcement that it was lowering its overnight rate, speculating about what it would mean for Canadian borrowers. And the biggest news may not be the that it was the first such change in over four years but that it caught so many people off guard.

“Part of the significance of the announcement by the Bank of Canada is not the rate announcement but the fact that they surprised the markets in doing it, which would lead us to believe that there could be further shocks to the system,” Calum Ross of Verico Calum Ross Mortgage told MortgageBrokerNews.ca. “I don’t think further rate cuts are out of the question when they surprise us with this.

“It’s uncharacteristic for a central bank to surprise the market – the very basis of stability of a financial system is about maintaining the trust and not having surprises happen.”

In the wake of plummeting oil prices, some suspected the central bank was poised to axe its overnight rate target. It was the first rate reduction since April 2009.

Many were caught off guard.

According to a Bloomberg news article about the rate cut, none of the 22 economists who took a Bloomberg news survey predicted a rate cut.

“We’ve seen that things can (change) quickly,” Gord McCallum of First Foundation told MortgageBrokerNews.ca. “Who knows what’s in store – like you said, a lot of the predictions have been wrong.”

And it isn’t just brokers crying foul.

“Never, ever listen to a central bank, because they will use you and abuse you,” Eric Green, head of U.S. economic research at TD Securities in New York told the Financial Post.

Related:
Brokers discuss the future of rates
15 Comments
  • Tony Piattelli 2015-01-23 11:32:17 AM
    Not sure what all the fuss is about, as there never should have been a rate increase when Mark Carney raised the BoC rate by 1/4% point to 3% in the first place. This is just putting the rate where it should have been.
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  • Sami Bin Saad 2015-01-23 11:43:13 AM
    Surprisingly, banks haven't followed suit, which defeats the very purpose for which the rates were reduced in the first place ie, help boost economy with lower interest rates. Oddly, the banks like RBC have immediately reduced interest its pays on GICs but not reduced interest it charges on lending. Its akin to "double-dipping".
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  • Kevin R 2015-01-23 11:55:57 AM
    Cmon Sami! Banks & Government are the best of bedfellows. You cant tell me the Finance Minister of Canada has been tightening mortgage lending, taking away programs & making it that much tougher to qualify the last how many years in the name of a "Housing Bubble" & too much Canadian debt, to shift gears now. The rates have been great for a long time, there is no need to drop rates further to facilitate activity in the Real Estate market. Just bring back 30 & 35 year amortizations to high ratio mortgages, bring back some of the different programs that fell by the wayside. The reason & only reason the Fed dropped the BoC rate is to drop the dollar to offset the plummet of Oil prices. The bonus for the Banks to come across as the bad guys again is there will be hundreds of millions of dollars extra profit for the Banks by not passing on the savings to Canadians. The Feds do not want this rate cut or any future cuts (we may see another) passed on to Canadians. End of story.
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