Good morning, the Bank of Canada had their scheduled rate announcement this morning & after dropping rates 3 times for a total of 1.5% in rate cuts in the span of 3 weeks, held rates as is. Not that there is much room to move here as the key lending rate is a hair above 0%.
What we saw in the last month was rates hitting all time lows, then bouncing sharply as lenders started seeing rising risk premiums & a higher cost of funds. That’s really an indication of trouble behind the scenes. The feds acted quickly in setting up a number of measures to help liquidity & get rates back in line with where they should be & we are starting to see that take effect now as rates have started to trickle downwards once again.
Couple items of note, Canada started up our own form of Quantitative Easing in buying $5B worth of government securities per week, as well as allocating $10B to purchase corporate debt. That last move is significant. One of the criticisms of how the US handled the great financial crisis was their bailing out of what were essentially bad investments. The question of moral hazard is one to be asked at all levels. In a world of bailouts, what happens to risk? Does it go away, or does it become a slippery slope where bailouts get bigger & bigger as they have in the US? What is the endgame?
Some pretty staggering stats in the last month:
- 1m workers lost jobs. The largest decline ever & wiped away 3 years of job creation in a single month
- 6m Canadians applied for emergency response benefit, which is 20% of our entire workforce.
- 12% of all mortgage holders in Canada applied for payment deferral
The challenge now facing everyone, is how to open up the economy without putting strain on our healthcare system. There is no great solution to this, at least not yet, but when that happens the question will be if pent up demand is able to bring our economy roaring back.
I’m going to link to the most current info on how to apply for mortgage deferral below, but wishing you all good health & luck in getting through this dark time in our history.