The Bank of Canada (BoC) recently announced its decision to maintain the overnight rate target at 1 ¾%– while the Bank Rate and deposit rate are 2% and 1 ½% respectively – resulting in no shortage of backlash. In its press release, the BoC cites the escalation of international trade conflict as a factor in the constricting of business investment, and thus, is a heavy blow to the global economic momentum that it had projected to be an influential growth factor in its Monetary Policy Report (MPR) back in July. Uniquely, the BoC remains the only … Continue Reading
Recently, Bank of Canada governor Stephen Poloz announced an increase in the interest rate from 1.25% to 1.5%. The increase comes as the Bank of Canada predicts a continued growth in the Canadian economy from exports and business investments. However, household spending may represent a smaller percentage of future economic growth due to the effects of a higher interest rate on consumers given that variable-rate holders may be forced to put their money elsewhere.
An increase from the Bank of Canada usually comes with increased costs for consumers. If precedent holds, the rise could lead to financial institutions increasing their … Continue Reading
Global M&A activity has been off to a record start this year. The overall volume has reached nearly $2 trillion as of May 21. While some may view this increasing trend with optimism, certain investors are skeptical of its longevity.
It has not gone unnoticed that the last couple of times global M&A volume reached similar levels was in 2000 and 2007 – periods where the market cycle peaked and was followed by a crash shortly thereafter. Business Insider recently noted a consistent factor between these periods is the “overexuberance being exhibited by investors.” The market activity experienced in the … Continue Reading
Many predicted that 2017 would be another record year for Canadian mergers and acquisitions (M&A). There are also currently some predictions that interest rates will continue to rise despite the recent announcement of a contraction in the economy. In this blog post we consider these two factors.
As depicted in Figure 1 below, while 2017 has seen a greater number of deals as compared to 2016, the value of these deals has generally been lower. Given the expectation of rising interest rates, this is consistent with our analysis that rising rates has little effect on the number of … Continue Reading
Today the Bank of Canada (the Bank) released its highly anticipated announcement regarding the overnight interest rate (the Rate). The announcement can be found in its entirety here. After previous successive Rate increases this past summer (as we reported on here), the Bank decided to maintain a steady course by keeping the Rate constant at 1 per cent, indicating a measure of return to normalcy. Apart from successive increases this past summer on the strength of the overall economy, the Rate had otherwise remained unchanged for the preceding seven years.
The broad implications of the decision … Continue Reading
For a second time this year, the Bank of Canada (the Bank) has raised interest rates. As of September 6, 2017, the overnight lending rate is 1 per cent, up from 0.75 per cent.
Two increases in a single quarter certainly bucks the trend that the Bank had been setting since 2010. Before July 12, 2017, there hadn’t been any upwards movement in interest rates for 7 years. That being said, the interest rate increase is not surprising given the current strength of the Canadian economy. In its press release, the Bank presented an optimistic view: growth … Continue Reading
On July 12, 2017, the Bank of Canada raised its overnight lending rate to 0.75 per cent from 0.5 per cent. This was the first such increase in almost 7 years, after a prolonged policy of fiscal stimulus in the wake of the economic recession.
While the need for an interest rate hike in the current economic climate is certainly contentious, the fundamental effects of rising interest rates are well known. At a macro level, borrowing and spending cash becomes more expensive, and saving becomes relatively attractive. The effect of an interest rate hike on M&A activity … Continue Reading
On December 7, the Bank of Canada (the Bank) announced that it will be maintaining its overnight rate at 0.5%, closing out a year of historically low interest rates. The overnight rate is the interest rate at which large institutions, including banks, lend money amongst themselves and is one of the main levers that the Bank can pull in order to effect a particular monetary policy. It forms the basis for other interest rates throughout the economy and, in theory, low borrowing rates incentivize deal-making. We have blogged before about the effect of interest rates on M&A deals, including … Continue Reading
Recently, the Bank of Canada (the Bank) announced the final list of 26 foreign currency exchange rates that it will continue to publish after March 1, 2017. The list of currencies is based on the majority of foreign exchange transactions conducted against the Canadian dollar and combines the top 20 currencies by trading volume and Canada’s top 20 trading partners. This list will be reviewed and revised, as needed, every three years.
The release of this list follows a trail of changes being made in respect of the Bank’s published foreign exchange rate data. In February 2016, the Bank … Continue Reading
The term “negative interest rates” was introduced into the Canadian vocabulary on December 8, 2015, when the Bank of Canada announced that it would be willing to use this “unconventional monetary policy tool” in the event of economic crisis. With the current benchmark interest rate of 0.5% already near historic lows, this announcement suggests that it has the potential to drop much lower – even below zero. The Bank of Canada stated that the effective lower limit, or “lower bound”, is now set at negative 0.5%.
While the Bank of Canada stressed that there are no current plans to take … Continue Reading
Statistics Canada’s June 30, 2015 announcement regarding the nation’s economic results for the month of April, measured in terms of national Gross Domestic Product, has many bankers and financial institutions predicting another Bank of Canada interest rate cut sometime during 2015.
Although real GDP fell by only 0.1% in April, the decrease marks a fourth consecutive monthly decline. Canada’s poor economic performance of late is owed, in part, to the fall in oil and gas extraction as conventional crude and non-conventional oil companies combined for a 3.4% month-over-month production cutback. Statistics Canada pointed to maintenance shut downs and production difficulties … Continue Reading
The Canadian dollar has taken a tumble in 2015 – dropping from approximately eighty-five cents to flirting around and even below eighty cents as compared to the American dollar. Analysts are blaming not only sinking oil prices, but also the Bank of Canada’s dovish monetary policy. On January 21st, the Bank of Canada cut its rate on overnight loans between commercial banks by one-quarter of a percentage point to 0.75%. The cut was unexpected as the rate had been at 1% since September 2010, and was last cut in April 2009. The Bank of Canada said its decision … Continue Reading
The most recent EU summit took place in late June, leading to an agreement among leaders to create a joint banking supervisory body for the Eurozone and implement a planned bailout fund for struggling banks. While analysts have applauded these steps as key achievements toward steadying markets in both the short and long term, questions remain with respect to the future of the Eurozone and its impact on existing and new transactions for Canadian companies.