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Bank of Canada increases overnight rate target to 1 per cent

bankofcanada.ca

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Re: Bank of Canada increases overnight rate target to 1 per cent

#21

Post by sparky_z »

toomuchtodo wrote: post #15
delinka wrote: post #13

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.

I'd say it's more like adjusting the input voltage to the AC directly than simply setting the thermostat. They have to monitor the results and changing conditions and then make adjustments manually, rather than rely on an automatic feedback loop.

Re: Bank of Canada increases overnight rate target to 1 per cent

#22

Post by X86BSD »

feriancek wrote: post #16
SimbaOnSteroids wrote: post #14

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.

As a hedge against a market collapse?

Like gold and silver?

Re: Bank of Canada increases overnight rate target to 1 per cent

#23

Post by IBM »

toomuchtodo wrote: post #15
delinka wrote: post #13

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.

Just to be clear, the Bank of Canada can control the overnight rate if it moves outside of the "operating band" by directly intervening in the market with overnight repo and reverse repo operations [1].

[1] http://www.bankofcanada.ca/2015/10/overnight-repo-overnight-...

Re: Bank of Canada increases overnight rate target to 1 per cent

#25

Post by [deleted] »

IBM wrote: post #23
toomuchtodo wrote: post #15

Earlier quoted context omitted.

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.

Just to be clear, the Bank of Canada can control the overnight rate if it moves outside of the "operating band" by directly intervening in the market with overnight repo and reverse repo operations [1]. [1] http://www.bankofcanada.ca/2015/10/overnight-repo-overnight-...

[deleted]

Re: Bank of Canada increases overnight rate target to 1 per cent

#26

Post by JshWright »

lmm wrote: post #17
SimbaOnSteroids wrote: post #14

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.

> Government bonds are seen as ultra-safe, comparable to cash, and while 2.2% is not great it's better than 0%.

And much better than anything < 0%.

Re: Bank of Canada increases overnight rate target to 1 per cent

#27

Post by ethbro »

SimbaOnSteroids wrote: post #14
latch wrote: post #9

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.

Because you need somewhere to park $xxB. What are your other options?

Re: Bank of Canada increases overnight rate target to 1 per cent

#28

Post by pjc50 »

SimbaOnSteroids wrote: post #14
latch wrote: post #9

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.

Banks (and other financial institutions). They more or less have to in order to make the books add up; or, in the clearing process, leave their money with another bank, most likely the central bank, which will pay little or no interest.

If you try to leave your money with the Swiss Central Bank they will charge you 0.75%. Buying bonds is definitely preferable to that. https://www.snb.ch/en/ifor/finmkt/operat/id/finmkt_nz

Re: Bank of Canada increases overnight rate target to 1 per cent

#29

Post by oculusthrift »

JshWright wrote: post #26
lmm wrote: post #17

Earlier quoted context omitted.

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.

> Government bonds are seen as ultra-safe, comparable to cash, and while 2.2% is not great it's better than 0%. And much better than anything < 0%.

swiss and some german bonds have been known to sell for negative yield because losing a small gauranteed amount is better than losing a lot

Re: Bank of Canada increases overnight rate target to 1 per cent

#30

Post by [deleted] »

IBM wrote: post #23
toomuchtodo wrote: post #15

Earlier quoted context omitted.

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.

Just to be clear, the Bank of Canada can control the overnight rate if it moves outside of the "operating band" by directly intervening in the market with overnight repo and reverse repo operations [1]. [1] http://www.bankofcanada.ca/2015/10/overnight-repo-overnight-...

[deleted]
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