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Stories Report on Business is following today:
Markets bet on next rate hike
Mark Carney’s quarter-point interest rate hike yesterday was ... so yesterday. Markets are now looking ahead to the next Bank of Canada meeting July 20 and their odds are 36 per cent of another increase in the benchmark overnight rate of one-quarter of a percentage point, which would bring it to 0.75 per cent. Yesterday, the central bank made its first move since the financial crisis and recession, becoming the first among the G7 to do so. But it also sent a signal that it would take into account the turbulence in the markets and further economic data before hiking again.
How will rate hike be felt?
The hike, which still holds the benchmark rate at an exceptionally low 0.5 per cent, was largely symbolic and the economy won’t feel it, Scotia Capital economists Karen Cordes Woods and Derek Holt said today, citing two reasons.
“One is that longer borrowing costs have fallen in offsetting fashion, and has [the Canadian dollar],” they wrote. “Forget the spread watchers, it’s the yield that matters to main street, including main street USA where the all-important 30-year fixed mortgage rate fell from a peak of 5.25 per cent in April to the 4.9-per-cent mark today driven by safe-haven seeking into government bonds.”
Also, they said, “financial innovation” in Canada gives borrowers much more control to adjust principal repayment schedules in response to rate changes. That has developed since the mid-1990s, beginning with the popularity of revolving lines of credit that see the borrower determine the principal repayment schedules, and has since spread.
“Households have more ability than ever to offset modest rate changes with modified principal repayment schedules than ever before,” they said. “Real tightening in this cycle will only begin when the overnight rate has climbed much further.”
Read
Carney plots cautious rate path
Boyd Erman: Kiss the days of easy interest rate forecasts goodbye
Rob Carrick: Time to get serious on paying down debt
Video
Investor Roundtable: Sizing up the rate hike
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