Skip to main content

Briefing highlights

  • Interest rates: You, me and Alice
  • Bank of Canada boosts benchmark rate
  • Markets at a glance
  • Sporting Life, Golf Town to merge

Bank of Canada boosts key rate

The Bank of Canada raised its benchmark rate again today, and sent a definitive message to markets that its ready for more.

As The Globe and Mail’s Barrie McKenna reports, governor Stephen Poloz, senior deputy Carolyn Wilkins and their colleagues raised the overnight rate by one-quarter of a percentage point to 1.75 per cent.

At the same time, and in a key move, they dropped their previous reference to taking a “gradual” approach to further increases, sending the Canadian dollar up in the process as higher rates are loonie-friendly.

Story continues below advertisement

It also tweaked its economic growth prospects and cited the easing of trade tensions with the United States.

“But the tone was more hawkish than we expected, dropping the reference to ‘gradual’ for hikes ahead (which markets will see as leaving the door open for two in a row, meaning a hike in December), and asserting that rates will have to keep climbing to ‘neutral,’ which the Bank has estimated as near 3 per cent,” said CIBC World Markets chief economist Avery Shenfeld.

“That’s more hawkish than we see as the likely outcome, as we’re not as optimistic on the economy’s ability to weather that dose of tightening, and note that the bank will still ‘take into account how the economy is adjusting.’”

Which is where you and I and Alice may play a role as to what comes next.

The central bank said it’s still fretting over high levels of household debt, and the impact of rate increases as consumer borrowing costs rise from the ultra low levels of the financial crisis and later oil shock. Remember, we owe $1.69 for every dollar of disposable income.

Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen Poloz

PATRICK DOYLE/The Canadian Press

Which means Mr. Poloz and Ms. Wilkins are watching you, me and Alice closely. Because we owe $1.69 for each dollar of disposable income.

Alice is a perfect example.

Story continues below advertisement

Profiled about a year ago by Dianne Maley in our Financial Facelift feature, she and her husband own an expensive home in the Vancouver area, are both self-employed in their fifties, are educating three kids, and were, at the time, looking at renewing their mortgage at a higher rate.

And, importantly, her husband carrying that mortgage into retirement as he’s the older of the two.

Alice and her husband

You can read about them here in our feature, which doesn’t use real names.

In its accompanying monetary policy report, the central bank noted that Canadians are taming their borrowing habits in the wake of tighter mortgage-qualification rules and other measures meant to cool off inflated housing markets, particularly in Vancouver and Toronto.

“Household credit growth has slowed, and the share of new mortgages with high loan-to-income ratios has fallen,” the report said.

“The ratio of household debt to income has levelled off and is anticipated to edge down.”

Story continues below advertisement

Things are definitely improving. New low-ratio mortgages fell in the second quarter by about 15 per cent from a year earlier. And, importantly, the decline was “more pronounced” among those really vulnerable borrowers whose loan-to-income ratio topped 450 per cent.

And here’s the warning to you, me and Alice: “While policy measures have been effective in reducing household vulnerabilities, the sheer size of the outstanding stock of debt means that the vulnerability associated with elevated household indebtedness will persist for some time.”

Which is why analysts attach caveats to how fast and how high the central bank will go, and why our debts may play a role.

“The bank’s communication today reaffirms our view that three additional rate hikes are likely next year, with the first coming in January,” said Toronto-Dominion Bank senior economist Brian DePratto.

But that will hinge on how debt-burdened consumers respond.

“It is crucial that the moderation of consumer spending remain just that – a moderation, rather than a pause or outright contraction,” Mr. DePratto said.

Story continues below advertisement

“Should rising rates begin to have an outsized (and growth-sapping) impact on spending/credit growth, we’d expect at least a pause (beyond the spring 2019 break we’ve already penciled in) to reevaluate the path.”

Read more

Markets at a glance

Read more

Sporting Life, Golf Town to merge

No pun intended here, but Sporting Life and Golf Town are linking up.

The two companies today announced a merger that will see them continue to run separately, with their own brands, but “they will jointly invest in key people, technology and supply chain to enhance future profitable growth and synergies.”

Sporting Life has 11 shops in Ontario, Alberta and Quebec, with plans for another in Vancouver next year.

Golf Town, in turn, has 47 stores. Both are owned by Fairfax Financial Holdings.

“Sporting Life experiences its strongest sales in the winter months, while Golf Town experiences its strongest sales in the summer months,” Sporting Life chief executive officer David Russell. “We believe this to be a natural ‘hedge’ allowing both companies strong profitable performance throughout the year.”

Story continues below advertisement

Read more
More news
Streetwise
Insight
Inside the Market
In case you missed it
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter