11–20 of 214 posts
The exchange rate between the USD and CAD jumped by over 1% at the announcement despite it being widely expected: https://www.bloomberg.com/quote/USDCAD:CUR
So what exactly does this entail?
For those like me who didn't know what the over night rate is: "The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or `overnight`) funds among themselves; the Bank sets a target level for that rate." http://www.bankofcanada.ca/core-functions/monetary-policy/ke...
For those not following Canada's economy. Two weeks ago no one was sure if they'd hike the rate again, and no one thought they'd do it so quickly (though it seemed likely they'd do it ~oct/nov). But, Canada posted exceptionally strong growth numbers (4.5%) at the end of August, which kind of made this very likely. Also, the government just sold bonds that mature in 2064 (at 2.2%) and has indicated that it might issue…
For those like me who didn't know what the over night rate is: "The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or `overnight`) funds among themselves; the Bank sets a target level for that rate." http://www.bankofcanada.ca/core-functions/monetary-policy/ke...
I'm not sure I understand "target" in this context. Does it mean "a suggested rate" or "lowering/increasing the current rate over time toward this target" or "the actual rate"?
Think of it like setting the temp on a thermostat. You are attempting to achieve a temperature through the use of a device to put energy into a system, but there are other factors that contribute to the actual temperature achieved.
For those not following Canada's economy. Two weeks ago no one was sure if they'd hike the rate again, and no one thought they'd do it so quickly (though it seemed likely they'd do it ~oct/nov). But, Canada posted exceptionally strong growth numbers (4.5%) at the end of August, which kind of made this very likely. Also, the government just sold bonds that mature in 2064 (at 2.2%) and has indicated that it might issue…
Why would any entity buy bonds that when matured will not have kept up remotely with inflation? Obviously I'm missing some key idea here, I just have no idea what it is.
For those not following Canada's economy. Two weeks ago no one was sure if they'd hike the rate again, and no one thought they'd do it so quickly (though it seemed likely they'd do it ~oct/nov). But, Canada posted exceptionally strong growth numbers (4.5%) at the end of August, which kind of made this very likely. Also, the government just sold bonds that mature in 2064 (at 2.2%) and has indicated that it might issue…
Why would any entity buy bonds that when matured will not have kept up remotely with inflation? Obviously I'm missing some key idea here, I just have no idea what it is.
Maybe they think inflation will stay low. My sense is that at the moment there's a lot of money sloshing around chasing not-so-great returns, so returns on everything are low - capital is subject to supply and demand like anything else.
Earlier quoted context omitted.
I'm not sure I understand "target" in this context. Does it mean "a suggested rate" or "lowering/increasing the current rate over time toward this target" or "the actual rate"?
It is a rate they attempt to achieve through their actions. They can influence the rate, but not outright set it due to market conditions. Think of it like setting the temp on a thermostat. You are attempting to achieve a temperature through the use of a device to put energy into a system, but there are other factors that contribute to the actual temperature achieved.
So what exactly does this entail?
More expensive loans, higher interest rate on mortgages and credit cards. Traditionally saving accounts won't be affected and still have near zero return rate thought.
To explain a little further: A variable rate mortgage can have fixed payments - every day your mortgage accrues a bit of interest, then when you make the payment it pays off that interest and the remainder pays off the principal. If the interest rate increases that just means that the interest that accrues every day is a bit higher and less of your payment goes against the principal, so it takes longer to pay it off.
If the interest rate hits the point (the trigger rate) where your monthly payments no longer cover the interest, then your bank will call and want to increase your payments. In this case, a rate hike will translate to higher payments.
Earlier quoted context omitted.
Why would any entity buy bonds that when matured will not have kept up remotely with inflation? Obviously I'm missing some key idea here, I just have no idea what it is.
Government bonds are seen as ultra-safe, comparable to cash, and while 2.2% is not great it's better than 0%. Maybe they think inflation will stay low. My sense is that at the moment there's a lot of money sloshing around chasing not-so-great returns, so returns on everything are low - capital is subject to supply and demand like anything else.