Lender takes BoC to task

Lender takes BoC to task

Lender takes BoC to task The Central Bank has been given a failing grade by one of the country’s largest lenders, following a surprise rate hike last week that few industry pundits saw coming.

“To be absolutely clear, we have no problem with the Bank raising rates,” Doug Porter, chief economist for the Bank of Montreal, wrote in his latest research note. “On the contrary, we have been agitating for a more hawkish stance for nearly a year, and believe the case for rate hikes is strong. Unfortunately, we heard absolutely nothing about that case from the Bank over the past two months. And therein lies the issue.”

Indeed, the big bank wasn’t the only one blindsided when the Bank of Canada hiked its target for the overnight rate to 1% last week.

A Reuters poll of economic forecasters corroborated the surprise, with 27 of 33 experts guessing the bank would stay pat.

To say Porter was perturbed by what he believes to be a lack of communication would be an understatement.

“Ahead of every FOMC meeting, we are asked to grade the Fed’s communications policy since the prior meeting. On the Bank of Canada, many would be tempted to give them an F in this case. We think that harsh judgement is wrong—we would give them a zero,” he wrote. “As in, there was no communication since the last meeting. Zilch. Zip. Nada. Nothing. As per Cool Hand Luke, what we had here was a failure to communicate—an epic fail.”

However, one mortgage broker argues the Bank of Canada’s communication lapse may not have been intentional.

“It feels to me like the Central Bank itself was surprised at the strength of the economic growth,” James Laird, president of CanWise Financial, told MortgageBrokerNews.ca. “And so they, themselves, probably moved from their planned position of waiting until October or later when they saw the strength.”

So Laird is giving the BoC a pass.

For now, at least.

“Anyone in the industry appreciates having as much foresight as possible so we can help clients strategize," he said. "We would have of course appreciated more of a heads up but I’d say this one was the least telegraphed of most in the last several years. So if this is a one off that’s ok; we just don’t want it to become a habit because it makes us look not so smart in the eyes of our clients.”
3 Comments
  • James 2017-09-12 9:49:07 AM
    This is a great example of the collusion between the BoC and the big banks. By not hinting/warning of a rate increase, bank Variable Rate clients did not have time to weigh their options and possibly convert to a fixed rate.
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  • Sheryl Dawson 2017-09-12 10:47:55 AM
    The big banks have incredible lobbying power with the Federal Government. Rate hikes are good for the banks but not for small or medium size businesses or the consumer. There should be a strong "push back" from these groups because the criteria the Central Bank uses to raise rates in the 1st place has "major" economic "holes" in it. Big shareholders (wealthiest 5%) of the banks are cheering while everyone else is "paying the price." And remember all the major banks in Canada are connected to the USA banking system and other banking systems around the world.
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  • Peter 2017-09-12 1:44:23 PM
    Why is nobody talking or taking the big banks to task for keeping the previous reduction to themselves but quickly taking advantage of an increase to raise prime rates.
    In case most have forgotten the BOC lowered the overnight rate twice in early 2015, the banks only reduced prime by 30bps keeping 20bps for profit. TD actually went a step further and created their own "mortgage prime" 15bps higher than all others so in fact they kept 35bps of the 50bps BOC reduction.
    The same thing happened in 2008, the BOC reduced the overnight rate by 50bps but the banks only passed on 25bps of the reduction, keeping the rest for profit.
    The BOC plan for stimulus only works if the banks pass on the reduction, otherwise it only increases their profits.
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