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Issue No. 3                     "Representing Your Best Interest!!" March 3 , 2010

Rates to go up - SOON!!

on the upside we are golfing already in the Okanagan:)

Yesterday The Bank of Canada held their overnight (variable) rates steady once again, but by all indications this may be the last stand for the Government as economic and inflationary pressures are beginning to rear their ugly head and will force the BofC to move slightly ahead of their planned July standoff! My opinion only!The markets are also showing decreases in bond yields, with the comfortable spread between 1.35 and 1.60% being dwindled down to 1.06% at mid morning today! It is inevitable that rates will go up, how much, and what impact it will have on our housing market will remain to be seen?
 As many of you know, we spend some time each winter in Australia, and over the years I have monitored how their markets are reacting compared to ours. It is almost like a mirror image one year in advance, and I have included an article about Australia in this newsletter to show what is ahead for us in Canada. The RBC (Australian version of Bank of Canada) has raised rates 4 out of the last 5 reporting dates, and their Prime lending rate (prime rate is 4.00% plus bank profit) is now 5.75%! We are at 2.25%!
For anybody with clients looking to buy - now is the time, these current rates will not come back again anytime soon!
Stay tuned as this will be ongoing news for the rest of the year and on, and I will do my best to keep everybody ahead of the game!
Rod Minnes
Managing Broker

Rates as of March 3, 2010
Fixed Rate Mortgages    
6 month convertible            4.60%
1 year open                           6.50%
1 year closed                        2.35%
2 year closed                        2.95%
3 year closed                        3.50%
4 year closed                        3.89%
5 year closed                        3.79% 

Variable Rate Mortgages    
5 year closed - Prime* - .30%  ****
5 year open   - Prime* + .80%

Home Equity Line Of Credit

Please call for product availability and rates.

Information from sources deemed to be reliable. Product availability and borrower qualification apply.
*Prime = 2.25%
Rod Minnes
Global West Mortgage

Pressure grows for Bank of Canada to hike rates

Paul Vieira, Financial Post 

OTTAWA -- Pressure on the Bank of Canada to move early on raising interest rates mounted Monday after data on fourth-quarter gross domestic product suggested the economy is roaring its way out of recession after recording the fastest pace of growth in nearly a decade.

The central bank could provide hints of a change Tuesday morning when it releases its latest statement on interest rates. Its plan for almost a year has been to conditionally keep its benchmark rate at 0.25% until July in an effort to pump up economic growth after the great recession.

Data from Statistics Canada suggest the emergency-level rates have worked their magic, perhaps faster and better than anticipated.

The economy expanded 5% in the final three months of 2009, blasting past market expectations for a 4% gain - and the bank's own 3.3% forecast - and setting the stage for robust growth this quarter. It is also the fastest pace of quarterly economic growth since late 2000. Further, the data were solid across the board, with personal consumption and net trade contributing to the performance.

Third-quarter data were also revised upward, with growth of 0.9% as opposed to the original 0.4% reading.

This comes on top of January inflation data that indicated price increases have moved closer to the central bank's 2% target earlier than envisaged.

"With growth being stronger than expected and inflation sticky ... we remain of the view that the Bank of Canada has the full green light to hike as emergency conditions have passed and with it justification for sticking to the zero lower bound on rates," said economists Derek Holt and Karen Cordes from Scotia Capital.

Yanick Desnoyers, assistant chief economist at National Bank Financial, said a rate hike could come as early as next month, when data might show the output gap - or the amount of slack in the economy - is narrowing faster than the central bank expected.

He added the headline GDP data might be underestimating how quickly economic slack is being absorbed. For instance, gross domestic income - or the sum of all wages, corporate profits and tax revenue - climbed by 8.5% in the quarter, the best showing since 2005. And that follows a 4.5% gain in the third quarter.

Sheryl King, chief economist and strategist at Bank of America/Merrill Lynch Canada, said she expects a rate hike in June, based on a belief the central bank will want to see through its conditional pledge for as long as possible.

Among the data points she said she found most encouraging was a 4% gain in real wage growth - defined as gains in household income excluding transfers from governments. The last time there was growth in this category was prior to the recession.

"This signals that risk taking and organic growth is coming back in Canada," she said.

Of course, not all analysts believe the data will push Bank of Canada governor Mark Carney to veer off course. Douglas Porter, deputy chief economist at BMO Capital Markets, said the data surely raises the odds of a July rate rise but anything earlier than that remained remote. Analysts at TD Securities also shared a similar view.

Also, the data contained one key blemish - a 9.2% drop in machinery and equipment investment by Canadian companies, which does not bode well for efforts to boost abysmal productivity levels.

The GDP data attracted investors, as the Canadian dollar gained a full US1, to US96.01, on the possibility of an early rate hike.

Canadian growth should remain robust as the global recovery takes hold. Business surveys released Monday indicated manufacturers continue to lead the recovery, with factory activity expanding last month across Asia, the United States and Europe.

Australia central bank raises interest rates

Wayne Cole, Reuters 

SYDNEY-- Australia's central bank raised its benchmark interst rate by 25 basis points to 4.0% on Tuesday and flagged further hikes ahead, saying a surprisingly strong recovery allowed it to move policy toward more normal settings.

Interest rate futures slid as investors priced in further gradual hikes from the Reserve Bank of Australia (RBA). A rise in April was seen as unlikely but the odds of an increase in May were evenly split and almost fully priced in for June.

"It is very likely the RBA will hike again in the next three months," said Rory Robertson, interest rate strategist at Macquarie. "It's a 'normalisation' of policy given the economy has performed better than anyone dreamed a year ago."

This was the fourth increase in five policy meetings, putting Australia far ahead of most other rich nations where rates are at 1% or less.

Indeed, RBA Governor Glenn Stevens flatly stated that lending rates were still below average and Tuesday's move was just a step toward getting back there.

"With growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," Stevens said in a statement.

Last month he estimated a more normal range for lending rates would be between 4.25 and 4.75%, and investors assume the bank will get to the top of that band by year-end.

Interbank futures are fully priced for a move to 4.25% by July, and then in stages to 4.75% by December. One-year swap rates edged up to 4.65%.

Reaction in the currency market was restrained as the Australian dollar had already risen sharply in recent days, hitting a record high on the euro and a 25-year peak on sterling.

Treasurer Wayne Swan spun the hike as a sign of Australia's relative strength. Rising mortgage rates are always unpopular in a country obsessed with home ownership.

"The economy is recovering and rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world," Swan told reporters.


His optimism should be supported by figures due on Wednesday which are expected to show the economy grew by a solid 0.9% in the fourth quarter of 2009, a marked step up from 0.2% the previous quarter.

Growth for the year is seen accelerating to around 2.4%, from a pedestrian 0.5% in the third quarter.

Some of that revival was courtesy of fiscal stimulus which saw public spending jump 3.8% last quarter, the biggest rise in a decade. That alone should add 0.9%age points to gross domestic product (GDP) in the quarter.

By concentrating on the labour-intensive building sector, the fiscal splurge also helped keep people in jobs and was one reason unemployment surprised everyone by falling late last year.

The drop in the jobless rate to just 5.3% in January from a high of 5.8% in October, is a critical plank in the case for higher interest rates.

And there was more evidence the revival had gathered steam this year. Data out Tuesday showed retail sales jumped 1.2% in January, well above forecasts for a 0.5% gain and a return to growth after December's 0.9% drop.

Retail sales account for around 23% of GDP and the sector is the biggest single employer.

"It all hints at a consumer little affected by higher borrowing costs and is spending without any fiscal assistance," said Su-Lin Ong, senior economist at RBC Capital Markets.

"The bottom line is that a 3.75% cash rate was too low for an economy that is returning to 3%-plus growth, underpinned by a recovery in the terms of trade, and with limited capacity in both goods and labour markets," she added.

The buoyant outlook for trade was underlined by the country's official commodities forecaster which predicted that exports of liquefied natural gas would nearly double by 2014/15, while exports of iron ore could rise almost 70%.

If correct, that would deliver a huge windfall to Australian profits, investment, wages and tax receipts and is a major reason the RBA is so bullish on the country's longer-term outlook.