Bank of Canada cuts rate to virtual zero, says extraordinary action possible
Julian Beltrame - March 03, 2009 (The Canadian Press)

OTTAWA - The Bank of Canada slashed its key short-term interest rate about as low as it can go Tuesday and said it may have to resort to extraordinary measures to stimulate the economy which, it acknowledged for the first time, is unlikely to recover this year.

The central bank did what most private-sector economists advised it to do, cut the trend-setting overnight rate to an all-time low of 0.5 per cent and Canada's commercial banks quickly followed, cutting their prime rate by half a percentage point.

The lower prime rate of 2.5% will benefit mortgage holders who have a variable rate mortgage but will have little or no immediate impact on many corporate borrowers or credit card holders and will further reduce some interest rates paid to savers.

FEDERAL BUDGET - Homeowners win
Elizabeth Thompson - Jan. 29 (Sun Media)

OTTAWA - Renovating your house or buying a first home just got a bit easier, after Finance Minister Jim Flaherty introduced a budget with millions of dollars designed to jump-start Canada’s construction and housing sectors.

Some of the biggest winners will be homeowners who had been planning to spruce up their houses or make them more energy efficient. Under Flaherty’s plan, starting today homeowners can get a 15% tax credit of up to $1,350 for eligible renovations to their home or cottage. Renovations must exceed $1,000 but the credit tops out after $10,000 of work.

However, the plan only runs until Feb. 1, 2010 and not everything is eligible. While jobs such as painting your house, renovating a kitchen or adding an addition or desk qualify, the annual maintenance that you would do every year doesn’t. Installing new windows counts but not washing the ones you already have.

Under the measure that is expected to cost the government $3 billion, you can do the work yourself or hire someone to do it for you. But if you do the work yourself, you won’t be able to claim the cost of your labor. If you hire someone, they have to have an arm’s length relation to you unless they are registered for the goods and services tax.

Anyone in the family can claim the tax credit - it doesn’t have to be the person earning the lowest income - and the credit can also be shared among family members. The government estimates that 4.6 million families will benefit from the home renovation tax credit.

Quietly, officials also hope it could have also have another impact. The fact that homeowners have to submit receipts to qualify for the tax credit could reduce the amount of home construction work being done in the underground economy.

In some cases, homeowners will be eligible to claim deductions for some spending twice. For example, renovations eligible under the Medical Expense Tax Credit can also be claimed under the home renovation tax credit program.

The home renovation tax credit can also be claimed for work that also qualifies for the ecoENERGY Retrofit program. Under the retrofit program, which is expected to cost the government $300 million over two years, homeowners can get grants of up to $5,000 to help pay for improving the energy efficiency of a home or building such as increasing its insulation or upgrading a furnace.

The government has also earmarked another $15 million to nudge Canadians with RRSPs into buying homes. Starting today, you can withdraw $25,000 tax free from your RRSP to buy or build a first home - up from $20,000.

Low-income Canadians haven’t been forgotten. The government will spend $2 billion over the next two years to renovate, retrofit and build social housing for seniors, those with disabilities as well as on First Nations reserves and in the North.

Canadian Banks Match Central Bank Rate Cut
Sean B. Pasternak - Jan. 20 (Bloomberg)

Bank of Montreal, Toronto-Dominion Bank and other Canadian lenders matched the Bank of Canada’s interest rate cut for the first time in three months in a bid to spark lending amid a recession.

The lenders, including Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada and Bank of Nova Scotia, cut their prime lending rates to 3 percent from 3.5 percent today, matching the central bank’s half-point cut. Bank of Montreal also lowered its five-year variable mortgage rate by 50 basis points to 4 percent.

The moves represent a change from the past three months, when Canadian lenders were less willing to immediately match the central bank moves because of rising borrowing costs. The banks failed to follow policy makers on Oct. 8 for the first time in about a decade.

“It’s a real issue in terms of Canadian monetary policy if the banks don’t pass on rate reductions,” said Erin Weir, an economist for the United Steelworkers union in Toronto. “Governments have kind of resorted to moral persuasion.”

Finance Minister Jim Flaherty met with bank executives on Jan. 5 and pushed them to extend affordable credit to consumers. Flaherty, 59, has said access to credit is the No. 1 concern of business owners he has spoken with as he prepares his 2009 budget, scheduled for Jan. 27.

“Canada’s banks remain committed to working with their customers and providing credit during these times of economic uncertainty,” the Toronto-based Canadian Bankers Association said yesterday in an e-mailed response to questions. “Banks will continue to lend to those who are credit-worthy.”

Bank of Canada Lowers Rate
Steven Donnan - Tue Dec 9, 2008 6:05pm EDT

Ottawa - The Bank of Canada slashed its key interest rate by three quarters of a percentage point to 1.5 per cent on Tuesday. The cut has reduced the benchmark lending rate to its lowest level since 1958.

Shortly after the Bank of Canada announcement on Tuesday, several banks -- including the Toronto Dominion Bank, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal and the National Bank of Canada -- announced they were lowering prime lending rates by 50 basis points, to 3.5 per cent.

Globe and Mail Update
Lori McLeod - October 22, 2008 at 1:46 PM EST

Variable mortgages have become a bit cheaper after the Bank of Canada cut its key lending rate by a quarter of a percentage point on Tuesday.

The big winners are people who already hold variable products at a fixed discount to prime, the rate the banks offer their best customers. Read article