Canadian High Interest Savings Bank Accounts

I'm thinking it will go up, however, not by much. The unemployment rate is still sky-high (over 10% where I live – it hasn't improved at all since the downturn caused all the jobs to be shed), and I'm not sure how this persistent unemployment and seemingly jobless recovery will factor into how the central bank decides to set interest rates.

Gas prices are also going up, which will further raise costs for businesses and consumers.

I agree with the points made. The institutions paying the best rates on deposits are doing so for a reason, to shore up their balance sheets or to raise capital for lending. Banks that are sufficiently capitalized won't pay higher rates on deposits than they can get away with paying. I think you'll see the big banks paying rates under 1.5% for the next twelve months or so, even if prime inches up by a quarter percentage point to half a point this year.

Cheers,
Doug

I am not an economist, buuuuut…

BoC could either change the rate as the market demands (a "natural" rate change) or to try to fit some kind of monetary policy (an "artificial" rate change). If they make an artificial change, the market will respond in a way to balance it out.

Say for example they bump the rate by a HUGE amount when the market doesn't demand it. Then if you own Canadian dollars, the number you own can grow over the years. However, since this is an artificial rate change, the real value of your investment won't grow at that huge rate. In other words, the value of the Canadian dollar falls relative to other currencies.

Canadian monetary policy makers have a vested interest in keeping the Canadian dollar under par with the USD, because a lower domestic currency makes exports more lucrative, and the Canadian economy is very dependent on exports. This is similar to how China artificially locks its currency to the USD.

Since we're talking about planned rate hikes, it means either BoC is anticipating where the market will be, or are implementing a planned monetary strategy, though most likely it's a combination of the two. They know that at some point, stimulating domestic spending will become less important than stimulating exports. I guess the plan is for June 1st for that.

I don't really know what I'm talking about; this is just speculation. But I'd be willing to go further out on a limb and suggest that if the USD falls below par with CAD, and continues to fall too fast in the next couple months, then interest rates may be raised even sooner, to reign in the value of the CAD.

What think?