Bank of Canada increases overnight rate target to 1 per cent • Hacker News Board

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

#71

Post by maerF0x0 » Wed, Sep 06, 2017, 5:15 PM UTC

jpdaigle wrote: post #55

kitcar wrote: post #51

Earlier quoted context omitted.

I believe the official stance of the bank of Canada is inflation is below target hence the low rates being acceptable for so long. What I don't understand (and I hope someone can shine some light on!) is the basket of goods they use to measure inflation doesn't seem to be very impacted by low interest rates - therefore how will the low rates increase inflation? i.e. banks will only lend to me at below 5% if I'm buyin…

Another thing I don't understand about the basket of goods approach to measuring consumer prices is how we're getting inflation figures which are so low. Since goods we buy priced in USD have gone up massively in 2-3 years due to a falling Canadian dollar (electronics, smartphones, computers, SaaS, etc.), the only way the basket stays at 2% YoY growth is if that's offset by other things falling in price. But, anecdot…

The cynic in me suggests that the basket might intentionally be chosen to hide the fact that the cost of living is going up. Lots of people with money have incentives for inflation numbers to be low. ex: COLA raises are common and benefit if the CPI hides the true costs

Ex2: many government benefits are tied to "inflation" . If your personal basket inflates faster than their example basket then they can get away with paying you less than promised (in spirit).

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

#72

Post by asdf33323 » Wed, Sep 06, 2017, 5:15 PM UTC

myth_drannon wrote: post #61

asdf33323 wrote: post #56

Earlier quoted context omitted.

Prices aren't down 20-30% - you're referring to average sales price. Big difference. It's been attributed to the sales mix (people opting for condos/townhomes)

They are. You can check the prices by categories. Detached houses -20%, condos are still holding up. Houses went from 960K to 720K since April

read my comment again. sales mix.

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

#73

Post by peeters » Wed, Sep 06, 2017, 5:16 PM UTC

dzdt wrote: post #66

asdf33323 wrote: post #58

Earlier quoted context omitted.

"The notion of fixed rate mortgages does not exist in Canada." ... "You can lock in for about 5 years" what?

In the US, the most standard "fixed rate" mortgage has the rate fixed for 30 years. A mortgage where the rate changes before loan maturity would be called an "adjustable rate mortgage" ("arm" for short).

Aren't we only talking about a difference in term length then? i.e. it's more common for the term length to equal the amortization length in the U.S.? In Canada even the amortization/maturity can't be greater than 25 years. And terms are commonly 5 years.

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

#74

Post by tostitos1979 » Wed, Sep 06, 2017, 5:17 PM UTC

myth_drannon wrote: post #61

asdf33323 wrote: post #56

Earlier quoted context omitted.

Prices aren't down 20-30% - you're referring to average sales price. Big difference. It's been attributed to the sales mix (people opting for condos/townhomes)

They are. You can check the prices by categories. Detached houses -20%, condos are still holding up. Houses went from 960K to 720K since April

Sorry. Your info doesn't match the same reality I live in. As the parent said, sales went down (don't know about mix). Prices for detached homes have not. We were seriously putting offers in March and got outbid for INSANE sums. e.g. 720K offer in Milton .. property went for 100K over. In Mississauga, homes listed for 850K went for 950K-1million. I am looking at data now and it has slowed but not gone down yet.

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

#75

Post by pishpash » Wed, Sep 06, 2017, 5:17 PM UTC

cthrow wrote: post #52

dmix wrote: post #43

The commonwealth countries are all facing a property bubble (Canada, New Zealand, Australia, etc). The household debt levels and property prices didn't taper off nearly as much following the 2008 US housing crisis and has pretty much continued unabated: http://www.huffingtonpost.ca/stephen-punwasi/real-estate-bub... Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and…

Alternative in 2008 was to let the banking system collapse, then rebuild from scratch. Personally I believe many older/sick people would have died if central banks hadn't dropped interest rates and embarked on QE asset purchasing schemes to keep the system afloat. Credit/lending would have all but disappeared for a while, many would have lost access to financial instruments necessary to secure housing, healthcare, in…

Dropping interest rates, backstopping systematically important institutions during the immediate crisis, and even the first QE were arguably necessary. The subsequent QE's and eight years of 0 interest rates were not.

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

#76

Post by nickik » Wed, Sep 06, 2017, 5:18 PM UTC

jpdaigle wrote: post #55

kitcar wrote: post #51

Earlier quoted context omitted.

I believe the official stance of the bank of Canada is inflation is below target hence the low rates being acceptable for so long. What I don't understand (and I hope someone can shine some light on!) is the basket of goods they use to measure inflation doesn't seem to be very impacted by low interest rates - therefore how will the low rates increase inflation? i.e. banks will only lend to me at below 5% if I'm buyin…

Another thing I don't understand about the basket of goods approach to measuring consumer prices is how we're getting inflation figures which are so low. Since goods we buy priced in USD have gone up massively in 2-3 years due to a falling Canadian dollar (electronics, smartphones, computers, SaaS, etc.), the only way the basket stays at 2% YoY growth is if that's offset by other things falling in price. But, anecdot…

I can not talk about the ins and outs of the statistical measures.

But from an economist perspective relative price changes of one good to another are usually not very relevant.

The measure for real domestic deflation you want to look at is the 'GDP Deflator'.

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

#77

Post by pycal » Wed, Sep 06, 2017, 5:19 PM UTC

blobbers wrote: post #53

Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats with prime. If prime rates rise, borrowers can be on the hook for large amounts of defaults as incomes fail to keep up with higher payments. (canadian housing market exhibits higher sensitivity to interest rates)

In Canada, banks offer fixed and floating rate mortgages; the mortgage rate is always prime + some %.

If you get a fixed-rate mortgage, you're locked in to your rate for 5 years regardless of how the Bank of Canada changes the prime rate. This has been the product of choice for Canadians for the last several years because it protects you against rising interest rates, and rates have had nowhere to go but up.

If you get a floating-rate, your rate moves when the Bank of Canada moves the rate. This is desirable if you think the BoC is going to lower interest rates.

Self-plug - I made a tool to look at how sensitive your monthly mortgage payment is to movements in interest rate: https://pycal.github.io/real-time-ammortization/

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

#78

Post by School-Cotton » Wed, Sep 06, 2017, 5:22 PM UTC

SilasX wrote: post #63

rjtavares wrote: post #38

Earlier quoted context omitted.

When you're talking about billions: If you hold it physically, you have to store it and secure it, which costs money. If you deposit it in a commercial bank, it'll be less safe than German bonds.

Wait, what? Isn't most money electronic anyway? How does it cost (O(n)) money to keep an entry in a digital record?

I'm not an economist or finance expert so take the following with a grain of salt, but this is how I understand it...

When you talk about "money being electronic" you're basically talking about bonds. When people (or companies, foreign governments, etc.) want to hold large quantities of USD they don't really hold USD, they hold short-term US government bonds.

The only truly "real USD" is physical cash, or an account balance at the Federal Reserve (which is available only to banks).

So people don't own bonds just because of the coupon, it's also really the only convenient way to own (something mostly equivalent to) currency -- other than keeping it in a private bank, which is much more likely to fail than the government.

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

#79

Post by module0000 » Wed, Sep 06, 2017, 5:23 PM UTC

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.

This is easy to answer. Because bonds(while "stable" over the long term), are volatile in the short-term(intraday).

The answer to your question "why would any entity buy bonds..." is: to sell them moments later at a profit.

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

#80

Post by refurb » Wed, Sep 06, 2017, 5:24 PM UTC

tostitos1979 wrote: post #74

myth_drannon wrote: post #61

Earlier quoted context omitted.

They are. You can check the prices by categories. Detached houses -20%, condos are still holding up. Houses went from 960K to 720K since April

Sorry. Your info doesn't match the same reality I live in. As the parent said, sales went down (don't know about mix). Prices for detached homes have not. We were seriously putting offers in March and got outbid for INSANE sums. e.g. 720K offer in Milton .. property went for 100K over. In Mississauga, homes listed for 850K went for 950K-1million. I am looking at data now and it has slowed but not gone down yet.

Real estate is local. I've seen multiple listing in the Toronto area, SFH, that haven't sold and are delisting at 20-30% below comparables from 3 months ago.