Don Cromar, CIM, FCSI

604 718 7511

Bank of Canada Holds Benchmark Rate at 1%

The Bank of Canada today announced that it was holding its benchmark rate at 1%, keeping interest rates at low levels, providing some further stimulus to the Canadian economy.  This announcement comes on the heels of Bank of Montreal announcing another drop in mortgage rates with 5 year closed mortgages now available at 2.99%.  This should lead to the other banks following suit creating a “mortgage war” with banks competing for retail mortgage business, further fuelling our real estate market.

Interestingly, Canadian consumer debt levels are now at the same levels US consumer debt levels were just prior to the dramatic real estate correction south of the border.  However, Canadian lending standards are much stricter, and the economic environment is much better than was the case in 2008 just prior to the economic recession.

In recent days we’ve seen the Canadian banks report quarterly earnings with positive results and a combined quarterly profit of over $6 Billion. Across the board, corporate earnings have been strong showing signs of economic growth in the US and in Canada resulting in job creation and GDP growth.  Despite a minor correction in broad stock markets last week, the stock market has recovered slightly in the last few sessions, up approximately 6% year to date. 

The European sovereign debt crisis has settled down with the Greek bailout, and despite Standard & Poor’s downgrading nine Euro countries earlier this year, and a minor contraction in European GDP, the indicators remain positive for the global economy as a whole.  China announced this week they forecast a slowing in growth of GDP to a mere 7.5%.  Emerging markets have performed well year to date, with the MSCI Emerging Markets index showing a 13% gain as at yesterday’s close of business. National Bank is forecasting global growth of approximately 3.4% this year with the US, Canada, and the emerging markets leading the way despite the minor European recession.

In Canada, we remain very optimistic with oil trading above $100 / bbl and our status with the second highest reserves globally. Our commodity driven markets, fuelled by Chinese and emerging market growth in consumer demand and manufacturing make Canada a strong alternative for global investors.  Energy, minerals, and potash are all found in abundance in Canada, and when combined with low interest rates, a growing economy, and a resulting strong dollar – our outlook is positive.  I maintain my forecast for high single digit returns for North American stock markets in 2012.

 

Don Cromar – March 8, 2012

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