End of an era ? | Page 2 | GIC discussions | Discussion forum

savemoresaveoften said

BoC never follow what the banks do. It is the other way around. Always has and even now, and expect to so in the future.
The only debate should be whether BoC is now more prone to crate to political pressure or not.
If central banks just follow the banks and politician can easily influenced it, no one will trust our financial system or monetary policy.  

Haha...that is what they would have you believe! Take a close look at the chart Norman1 linked to. You will see rates begin to go up at the end of 2021. The BoC only started their rate hikes on March 2nd, 2022. If someone with great charting skills could overlay a long term BoC rate change chart overtop a long term RDBA chart, it would become evident.

Here are the recent BoC rates from 2017 onwards.
https://www.bnnbloomberg.ca/the-bank-of-canada-might-be-done-with-rate-hikes-here-s-a-timeline-of-how-we-got-here-1.1988268#:~:text=The%20Bank%20of%20Canada%20has,per%20cent%20in%20March%202022.

BlueSky: You're not the first to quote "the budget will balance itself" to ridicule it - but you've left off half the quote, which said that IF THE ECONOMY GROWS, then the budget will balance itself. See:

http://www.simonstlaurent.ca/2.....quote.html

The original quote:

"The commitment needs to be a commitment to grow the economy and the budget will balance itself."

In its proper context the idea doesn't sound so harebrained.

This formulation has been used by numerous politicians to justify tax cuts, at least as far back as the Reagan era. See:
http://www.cbc.ca/news/politic.....-1.6159859

"We will grow the economy so that we can get back to balance in a responsible and equitable way without cuts. That is our plan," O'Toole said at a campaign event in Ottawa.

The comment is similar to one made by Liberal Leader Justin Trudeau years ago when, as the then third party leader, he was asked just how committed he was to balancing the budget.

"The commitment needs to be a commitment to grow the economy, and the budget will balance itself," Trudeau said in a 2014 CPAC interview — a comment that has been routinely mocked by his Conservative opponents ever since.

In other words changes in GIC rates reflect market expectations for future changes in CB rates. There is a correlation but you got cause and effect wrong.  

I never said it is cause and effect. The fact is, the financial sector of the economy is the leading edge. As such, it reacts much quicker then the BoC. The result is we consistently see the BoC being late to the party. ....so, who is following who? But, as AltaRed said, believe what you want to believe.

savemoresaveoften said
Financial market reacts to what CB says. The keyword is "says", which is a big difference from what CB actually "does". If you are a seasoned professional in the investment field you will have noticed CB's main focus is operating transparently. In other words, no surprise. How do they not deliver suprises ? By communicating well in advance. This is exactly WHY you observe and think banks / economy to appear to be the leading edge, your observation of banks acting faster than CB is correct, but what you think is totally wrong.
There is also conspiracy theory who runs the world blah blah, but banks running/ controlling the O/N bank rate etc is just 100% wrong.  

Really? In the same month that major banks began to increase GIC rates, this is what the BoC said on Dec 8, 2021.
"The Bank continues to expect CPI inflation to remain elevated in the first half of 2022 and ease back towards 2 percent in the second half of the year. The Bank is closely watching inflation expectations and labour costs to ensure that the forces pushing up prices do not become embedded in ongoing inflation.

The Governing Council judges that in view of ongoing excess capacity, the economy continues to require considerable monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s October projection, this happens sometime in the middle quarters of 2022. We will provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation target."

Seems to me they said we need to keep flooding the economy with easy money and that inflation was "transitory" and would revert back to 2% in the 2nd half of 2022. And we all know that was true!?

mordko said
BoC made a mistake. So did the markets. Bond/GIC rates stayed too low for too long. Predicting the future is very hard.
 

That is exactly what happened. No one can perfectly predict the future, whether its CB or regular Joe. Who knows something like Covid could just pop up and shut down world economy within 6 months, and then the V shape bounce that followed.
Market participants (aka bank interest rate traders etc) will always monitor / follow what the CB's statement and prediction closely. If the CB clearly says next move is a hike, you want to bet against the house and long bonds ?? CB leads the way via their narrative first, and they have the power to do so. Market participants dont.

mordko said
Markets can certainly force CB’s hand. It works both ways.  

Market as in economy, consumers and the like, but not banks that Lodown was referencing. If you look at the banks' economists, they all just reiterate the CB's inflation transitory language during that period. Some IR traders started putting bearish bet on bonds, but not by much.

savemoresaveoften said

Market as in economy, consumers and the like, but not banks that Lodown was referencing. If you look at the banks' economists, they all just reiterate the CB's inflation transitory language during that period. Some IR traders started putting bearish bet on bonds, but not by much.  

Fighting Goliath/CBs is dangerous, even when CBs try to impose a stupid monetary policy. Can be done though. Soros did it quite spectacularly to the Bank of England in 92. The banks are too risk averse and too dependent on the government for such plays but other players could still act as a tool for Mr Market.