Robert May is the broker and owner of Rainbow Realty of Lethbridge Alberta. He is also a licensed mortgage associate and financing expert with Canada First Mortgage of Calgary Alberta. He has been in the real estate industry since 1993 and offers full MLS real estate services to Lethbridge and surrounding area, as well as mortgage financing, refinancing/renewals, preapprovals, and home equity financing to Lethbridge and Southern Alberta. He can be found online at www.LethbridgeLoans.com
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By JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA -- In a move reflecting the mess facing the economy, the Bank of Canada is almost certain to cut interest rates to the lowest level in nearly half a century today and still wind up disappointing markets.
Private sector economists are almost unanimous in forecasting a half-point chop to the trendsetting bank rate to 1.75 per cent, the lowest since 1960.
But with the recession deepening, economists are advising bank governor Mark Carney to forget the threat of future inflation -- perhaps even welcome it -- and keep cutting borrowing costs in the next couple of months until the rate hits one per cent.
That would take Canada's target rate to the same level as the U.S., although the Federal Reserve rate may be down to zero by then.
"Inflation is still a legitimate risk, but the clear and present danger is a deep and prolonged recession with a remote possibility of deflation," said BMO Capital Markets deputy chief economist Douglas Porter.
"They have to fight the fire that's right in front of them, rather than worry about what's around the corner."
The fire in Canada has spread quickly. After holding up for most of the summer and fall, the economy has retreated in the past month and a half -- from consumer confidence, retail sales, building intentions, car sales and bankruptcies -- topped off by last Friday's news of 70,600 job losses and a rising unemployment rate for November.
The negative news continued yesterday with Canada Mortgage and Housing Corp. reporting that housing starts fell 19 per cent last month compared with October.
And the CMHC expects next year to be worse.
In normal times, lowering interest rates should egg both businesses and consumers into borrowing for needed investments and on purchases, such as homes, thereby jolting a lethargic economy into action.
But the global financial meltdown and fear of the unknown among both lenders and borrowers has limited the impact of monetary policy, say economists, leading to calls on governments to inject further stimulus through infrastructure spending and other measures.
Scotia Capital economist Derek Holt said Carney might be cutting rates even more aggressively, but for the recent clear signals by Prime Minister Stephen Harper and his finance minister, Jim Flaherty, that a major stimulus package will be tabled in the Jan. 27 budget.
Holt said there are signs that in Canada at least, the central bank's interest rate cuts have helped lower real-world interest rates. Interbank funding spreads have narrowed by more than half since mid-October, making it possible for banks to pass on the central bank rate cut to customers in the form of lower prime rates.
Prime is the rate for loans to banks' best corporate borrowers and are the base for lending on everything from mortgages to lines of credit, to consumer and car loans.
But while the bank's rate cutting and additional cash-boosting measures have kept the money markets working close to normal, they have not stopped the Canadian economy from stumbling into a recession.
Key interest rate highlights:
Current: 2.25 per cent
December 2007: 4.25 per cent
August 1981: 21.24 per cent (high)
September 1960: 1.93 per cent
July 1958: 1.12 per cent (low)
Robert W May is a Real Estate Broker in Lethbridge Alberta, having now been in the industry for over 23 years. . He was also a licensed Lethbridge mortgage broker and financing expert with Canada First Mortgage of Calgary Alberta for the past 10 years. He is an industry leader always willing to help train and educate others in how to improve their business models for financial and personal benefit.