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Canada's negative interest rate policy option
December 10, 2015
9:20 am
xxxx
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I personally do agree with Brimleychen - I feel our standard of living in Canada will be declining over the next few years unless economy "kickstarts" (and I do not believe that will occur - even with big new infrastructure spending and dropping interest rates again.)

Canada is a wealthy country by world standards - a high standard of living is enjoyed by the vast majority of our 34? million people (so my Liberal friends keep reminding me). So most Canadians will just keep doing what they do - living, working. spending, investing if they can and want to, using banks, etc.

December 10, 2015
10:36 am
Ed
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During the last budget crises in Greece and also earlier in Cyprus, all the banks were closed for several weeks. Customers were only allowed to make withdrawals at ABMs. Not much good when all you're cash was in a safety deposit box.

December 10, 2015
11:59 am
kanaka
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Ed said

During the last budget crises in Greece and also earlier in Cyprus, all the banks were closed for several weeks. Customers were only allowed to make withdrawals at ABMs. Not much good when all you're cash was in a safety deposit box.

Just received a message from Coast Capital.....

Subject of Message
We're listening. ATM withdrawal & debit card purchase limits have been raised.

This message will be deleted on 2015-12-19.

In response to member requests, the standard limit for ATM withdrawals has increased to $1000 per day, and the standard limit for debit card purchases has increased to $3000 per day.

December 10, 2015
1:52 pm
Loonie
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fabafter50 said

So what does the retiree that has money to invest do? Lock it in to a GIC now?

Falling interest rates suggest longer-term investments in the cash portion of portfolio, although you always need to keep enough liquid to cover expenses. Laddered GICs would be part of that. But, for those who already have a GIC or bond ladder, they will continue to experience lower returns as those are renewed. In recent years this has been balanced with good returns from the stock market portion, but not so much this year. Dividends are holding in many stocks, if you have the stomach to wait out price dips.
Poloz seems to be saying that even IF rates went negative, there would still be some gains for folks like us.
I suspect that even in the current environment, diversification is probably the best bet for most people.
Shopping around for rates and careful attention to tax planning do help. My after-tax income has gone up the last two years, just from doing that, despite falling rates.

December 10, 2015
4:53 pm
kanaka
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Another point of view.

Negative Rates Could Have Positive Effect
http://baystreet.ca/articles/e.....px?id=1508

December 11, 2015
3:18 am
Loonie
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So, the idea is that the banks MIGHT decide to free up their money and "invest" it if the Bank of Canada charges them to deposit it there.

Patti Croft knows a lot more about how banks operate than I do, likely more than any of us do on this forum, but it seems like wishful thinking to me. Yes, it "might", but do we really want them to start shelling out money in loans if they are not good loans? I don't think so, and I don't think their shareholders would want that either.

Surely, if there are more good loans to be made, they would be making them, because that's how they make money. They ARE making money, lots of it, so perhaps they do need a kick in the rear to spur on more deals, but, still, caution is a virtue when it comes to loans in an uncertain climate. Does Patti know something we don't know about the amount of caution that is being exercised? Perhaps, but she isn't telling, if she does.

Seems to me it will take more than this to convince the banks to change their tune.

The economy needs a major facelift. It needs more projects that are worth investing in. I think and hope this could happen, but it's a huge challenge.

December 11, 2015
8:32 am
Norman1
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Loonie said

So, the idea is that the banks MIGHT decide to free up their money and "invest" it if the Bank of Canada charges them to deposit it there.

Patti Croft knows a lot more about how banks operate than I do, likely more than any of us do on this forum, but it seems like wishful thinking to me. Yes, it "might", but do we really want them to start shelling out money in loans if they are not good loans? I don't think so, and I don't think their shareholders would want that either.
...

That's not the idea. We currently don't have any problems in Canada that a negative policy rate is a solution for.

I found earlier that Switzerland has negative short term rates to discourage the flow of money into their country. Apparently, it is such a desirable place that too much money was coming into the country, being converted to Swiss francs, and deposited in the Swiss banks!

Currently, the Bank of Canada rate is ½% per annum. I think banks have more profitable things to do with their money than deposit it with the Bank of Canada for around ½% per annum.

December 11, 2015
11:24 am
Yatti420
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Can our supreme commander order interest rates to negative? As far as I know this is not something Justin can control.. Already today we are making changes to CMHC adjusting downpayments (they say it's on houses 1mil plus[Now 500k]).. This will change aswell if the market surges.. Just seems to be the way the Libs operate..

@Norman1 exactly what happened.. Swiss banks had to go negative to stop the inflow of cash into the country.. Was crazy.. Take a look at BTC during this time..

Negative interest rates in Canada.. Yea.. We aren't Cyprus.. We aren't Greece.. This is one of the strongest arguments for diverifying out of cash into btc/gold/silver etc etc..

Edit: I should note that we all assume that numbers we read regarding Canada, US and the world are accurate and truthful.. Some people would say otherwise.. If tomorrow we enter into another "recession" like 2008 we can be sure we will be seeing some real change then! Thats for sure!

December 11, 2015
2:45 pm
Loonie
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Norman1 said

Loonie said

So, the idea is that the banks MIGHT decide to free up their money and "invest" it if the Bank of Canada charges them to deposit it there.

Patti Croft knows a lot more about how banks operate than I do, likely more than any of us do on this forum, but it seems like wishful thinking to me. Yes, it "might", but do we really want them to start shelling out money in loans if they are not good loans? I don't think so, and I don't think their shareholders would want that either.
...

That's not the idea. We currently don't have any problems in Canada that a negative policy rate is a solution for.

I found earlier that Switzerland has negative short term rates to discourage the flow of money into their country. Apparently, it is such a desirable place that too much money was coming into the country, being converted to Swiss francs, and deposited in the Swiss banks!

Currently, the Bank of Canada rate is ½% per annum. I think banks have more profitable things to do with their money than deposit it with the Bank of Canada for around ½% per annum.

My original comment followed the one before it, citing Patti Croft. It was she who said that negative rates might prompt the banks to do more lending. This may or may not be Poloz's or anybody else's idea, and it may or may not prove true in the long run. I kind of doubt it myself.

I can't see that it would solve anything to push rates down to negative either, but that wouldn't mean that they wouldn't do it. They have been putting them lower and lower for years now. I may be missing something, but I don't see that it has gotten us anywhere. Perhaps worse without it, but I'm not convinced.

If the banks have more profitable things to do with their money, then why aren't they doing it? Presumably because they would have to relax lending criteria, which they don't want to do because of risks. We are told by Patti Croft that they are sitting on it. I recall that she was Chief Economist at one of the Big Five for many years before she went freelance, so presumably she understands bankthink.

December 11, 2015
4:57 pm
kanaka
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Yatti420 said

Can our supreme commander order interest rates to negative? As far as I know this is not something Justin can control.. Already today we are making changes to CMHC adjusting downpayments (they say it's on houses 1mil plus[Now 500k]).. This will change aswell if the market surges.. Just seems to be the way the Libs operate..

@Norman1 exactly what happened.. Swiss banks had to go negative to stop the inflow of cash into the country.. Was crazy.. Take a look at BTC during this time..

Negative interest rates in Canada.. Yea.. We aren't Cyprus.. We aren't Greece.. This is one of the strongest arguments for diverifying out of cash into btc/gold/silver etc etc..

Edit: I should note that we all assume that numbers we read regarding Canada, US and the world are accurate and truthful.. Some people would say otherwise.. If tomorrow we enter into another "recession" like 2008 we can be sure we will be seeing some real change then! Thats for sure!

So if you buy a home for 500,000 which is pretty much the price here in greater Vancouver. While I have not had a mortgage for years and know little to nothing about it or the changes of mortgages but I have to ask ..... even though you would have to now give 10% or 50,000 down wasn't that pretty much happening anyways....don't the banks have a ratio of what they borrow based on what "they" think the home is worth and the difference is the down payment....likely 10% or more especially if the house is overpriced or there is a bidding war? If that is the case it is only going to squeeze a few buyers out of the market. And what about mortgage brokers that have a close link to Realtors....don't tell me there not some white lies on the mortgage application for wages so the buyer can be approved for a sale and a mortgage that is really out of reach in the event of a money shortage. It just happened and Home Trust just fired some of their brokers. This 10% won't stop that.

It is nice to hear that Trudeau cant adjust the bank rate.....but can he hint or is it really out of his control.

Ok the Swiss banks......I read awhile back that a lot of folks in France and they had mortgages out of country (from the Swiss or some one else?) Assuming they were ok with it all and the Euro is the common denominator but this lending country some how increased the value of their currency and caused a lot of stress on the French.

December 15, 2015
4:47 pm
JustMe
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Bill said

The fact that negative interest rates are happening elsewhere and may happen here just shows how historically unprecedented a situation we have these days around the world. It's fascinating to me how casual people and policy makers are about their use, as if the world will just go on as before, we'll just have negative interest rates. For me, I'm not paying someone to let them have my money, I'd rather cash out my GIC and savings accounts and stuff a safety deposit box or two or maybe bury it somewhere on the family cabin property.

You better invest your $$$ in Canadian Firearm Course, get a gun and sleep tight. Time will come... when...

December 15, 2015
6:42 pm
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Thanks for the tip but already done. A guy once told me wealth soon will again be weapons, women and goats, and I'm still working on the last two!

December 16, 2015
2:33 pm
Brimleychen
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An article to describe what happened after post-NIRP
http://wolfstreet.com/2015/12/.....itzerland/

December 16, 2015
2:38 pm
Brimleychen
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How stephen poloz destroy our dollar

http://wolfstreet.com/2015/12/.....ll-shorts/

December 18, 2015
8:27 pm
Yatti420
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I had to think about my initial response.. Yea the swiss move d btc..

Negative rate wise we look at cyprus..negative rates.. And a seizure or wealth.. You just wake up to half your money..

Or if Greece had dropped the euro..

I just don't like feeling like we're following these countries with reckless economic policy..

December 19, 2015
12:11 pm
Norman1
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Loonie said
...
My original comment followed the one before it, citing Patti Croft. It was she who said that negative rates might prompt the banks to do more lending. This may or may not be Poloz's or anybody else's idea, and it may or may not prove true in the long run. I kind of doubt it myself.

Perhaps, Patti Croft's comments are being misinterpreted. I don't think going from the current +½% Bank of Canada rate to -¼% or -½% is going to affect the lending practices of banks much.

Now, going down to -3% would have an effect. sf-surprised But that's not what the Bank of Canada governor had in mind.

Loonie said
I can't see that it would solve anything to push rates down to negative either, but that wouldn't mean that they wouldn't do it. They have been putting them lower and lower for years now. I may be missing something, but I don't see that it has gotten us anywhere. Perhaps worse without it, but I'm not convinced.

If the banks have more profitable things to do with their money, then why aren't they doing it? Presumably because they would have to relax lending criteria, which they don't want to do because of risks. We are told by Patti Croft that they are sitting on it. I recall that she was Chief Economist at one of the Big Five for many years before she went freelance, so presumably she understands bankthink.

I suspect the banks already are doing more profitable things with their money. I think it is unlikely that they would let their money earn ½% when it could be used to earn 2% or more.

Some of the banks have been around longer than Canada has been. They have enough experience to not "chase the yield". They understand that giving a loan for 4% per annum is not a good move when it is likely the borrower won't be able to repay the loan fully.

Is that what people are asking banks to do? Be less discerning and lend to borrowers who have a significant chance of default?

April 5, 2020
7:52 pm
Bud
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Some thoughts on Poloz when he said he hadnt implemented QE before yikes and hiring blackrock eek

You think the BoC is buying loonies? Seems to wanna stay above 70

April 6, 2020
8:12 am
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Well. There are no other way if every country tries to debase their currencies, and the only way to protect your paper money are using physical gold.

Of course, we have to live the daily live and keeping the liquidity in the saving account.

You can try whatever paper assets, but good luck, not even so called GIC, in a inflated reality and deflated in a control headlines.

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