Bank of Canada turns 75 | Toronto Sun

The Bank of Canada, still basking in the afterglow of praise for its handling of last year’s financial crisis, turns 75 on Thursday facing its next challenge of managing interest rate policy without stifling the recovery.

In October 2008, the central bank joined its counterparts in the U.K, the EU, the U.S., Sweden and Switzerland in announcing the first internationally co-ordinated rate cut as financial markets crumbled.

Since then, the Bank of Canada has reduced its overnight rate by a total of 425 basis points to a historic low of 0.25% first seen in April 2009. The bank made a public commitment to maintain rates at this level until the end of the first half, unless inflation spikes.

“In its response to the crisis, if it doesn’t get the gold it certainly gets the silver,” said Scotiabank economist Derek Holt. “It was ahead of the curve, but we’re now at a transition point and it certainly has its challenges ahead.”

Key among those challenges is how to raise rates enough to prevent inflation from running out of control, without choking off growth. The economy expanded by a faster-than-expected 5% in the fourth quarter, boosted by the booming real estate market.

In its latest interest rate announcement, the bank noted house prices had increased and growth had been above expectations, marking a shift in tone seen by many as laying the groundwork for rate increases to come.

“It’s a delicate balance between withdrawing emergency measures but not too hastily to short circuit recovery,” Holt said. “They have to signal to the markets this isn’t a classic recovery and rates will move from low interest rates to still being low interest rates.”

In the emergence from prior recessions rates have risen quickly once the tightening cycle began. Speculation that may happen again could boost the loonie, in turn stifling exports.

“I think the bank has managed to keep things grounded,” said Craig Fehr, a banking analyst with Edward Jones & Co. “On the whole they’ve done a good job.”

The Bank of Canada was born in the middle of the Great Depression. It received Royal Assent in July 1934 and began operations in March of the following year, issuing its first bank notes.

During the Second World War, its vaults were used as a safe haven for tons of gold secretly moved from European central banks.

The bank began life as a private institution selling shares to the public, though the government bought all its stock in 1938 and it became a Crown corporation.

Following a 1967 spat with the government, known as the Coyne Affair, the Bank of Canada Act was amended to give the bank operational independence.

Target rates aimed at keeping inflation under control were introduced in 1991. The bank now manages rates to keep annual price rises close to 2%.

The bank recently revamped its senior management team ensuring it has the talent to handle the recovery, appointing Tiff Macklem as senior deputy governor and Jean Boivin as deputy governor.

Article by By SHARON SINGLETON, QMI Agency

Posted via web from Toronto Real Estate News | Blog


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Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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