Banking & Finance

Canadian Banks Begin Hiking Rates; U.S. Far Behind? (TD, RY, CM, BMO, BNS, JPM, BAC, C)

The Bank of Canada this morning announced a hike for the overnight rate by 0.25%.  The new overnight rate is still only 0.75%. The Bank Rate is correspondingly 1.00% and the deposit rate is 0.50%.  Canada’s official statement started out, ” The global economic recovery is proceeding but is not yet self-sustaining.”  While Fed governors have signaled a long slow process for rate hikes in America, any additional notions that come in against the global and/or U.S. double-dip recession might have traders wondering just how far off interest rate hikes are going to be here in the land of Uncle Sam.

After noon EST we have already seen corresponding bank hikes on prime interest rates from Canadian majors.  Royal Bank of Canada (NYSE: RY), The Toronto-Dominion Bank (NYSE: TD), and Canadian Imperial Bank of Commerce (NYSE: CM)
have all announced that they have raised their prime lending rates by 0.25% up to 2.75% effective July 21, 2010.

Just as you see in the U.S., when one or two major banks raise rates, they all raise rates.  We have yet to see official prime rate hikes from Bank of Montreal (NYSE: BMO) and The Bank Of Nova Scotia (NYSE: BNS), but those hikes cannot be far behind.

If and when the rate hikes do finally come to the United States, you will see immediate prime rate hikes from the likes of J.P. Morgan Chase & Co. (NYSE: JPM), Bank of America Corporation (NYSE: BAC), Citigroup Inc. (NYSE: C) and other money-center banks.

The Bank of Canada also noted that a greater emphasis on balance sheet repair by households, banks, and governments in a number of advanced economies is expected to temper the pace of global growth on the Bank’s outlook in its April Monetary Policy Report.  The report further stated, “In the United States, private demand is picking up but remains uneven.”

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April report, with growth of 3.5% in 2010, 2.9% in 2011, and 2.2% in 2012.  The rate hike was also noted as being consistent in achieving the 2.0% inflation target.

We have seen rate hikes from South Korea, India, Australia, and Malaysia.  With Canada now in the rate hike game, the U.S. is likely not too far behind if it can avoid that double-dip recession.  Canada is viewed by many international investors as having a different economy that is more tied to commodity prices than just to services like we are in the U.S.  Their inflation and pressures are often different from what we have in the U.S.   Still, Canada is the largest U.S. trading partner.  These economies are not as independent of each other as many think.

Our survey is about to end for when rate hikes will come.  Tell us what you think:

[polldaddy poll=3384403]

JON C. OGG