Before deciding on rates in January, the Bank of Canada’s Poloz said the central bank will speak with the energy sector.

TORONTO:

Governor Stephen Poloz stated on Thursday that low oil prices in western Canada are the most recent shock to the Canadian economy and would be the focus of focused discussions with the energy sector prior to the Bank of Canada’s January interest-rate decision.

According to Mr Poloz, the discount on Western Canadian Select has decreased in keeping with the central bank’s predictions that there would be some recovery in the price of heavy Canadian oil after U.S. refineries restarted operations. But he added that poor prices have now extended to light crude in western Canada, known as Edmonton Par, due to a backlog of inventories, which has a greater negative impact on the country’s economy.

Banks require a Goldilocks situation when it comes to interest rates: not too hot, not too cold. It appears that the Federal Reserve will deliver.

To put it mildly, rising interest rates caused banks a great deal of stress, from quick deposit repricing to sharp declines in the value of their longer-term fixed-rate instruments. However, a sudden shift to lower rates would not have been ideal either, as it would have put pressure on their shorter-term and floating-rate assets’ interest revenue.

Banks need interest rates to be in the middle of the heat wave—not too hot, not too cold. Looks like the Federal Reserve will deliver.

To put it bluntly, rising interest rates caused banks much inconvenience, from having to quickly reprice deposits to having the value of their longer-term fixed-rate assets plummet. However, it wouldn’t have been ideal to make a sudden shift to lower rates, as this would have put pressure on their shorter-term and floating-rate assets’ interest revenue.

A Goldilocks scenario—not too hot, not too cold—is what banks need when it comes to interest rates. There seems to be no stopping the Federal Reserve.

The sharp increase in interest rates caused banks a great deal of trouble, from quickly having to repricing deposits to seeing the value of their longer-term fixed-rate assets plummet. They would have put pressure on their interest income from their shorter-term and floating-rate assets had they suddenly turned towards lower rates, but that would not have been a good thing either.

While many have the desire to purchase real estate when prices plummet, not everyone is willing to take the necessary risks. Compared to sluggish institutional investors, small, individual buyers have a higher chance of making the proper time decision.

According to Green Street’s Commercial Property Price Index, since the Fed started hiking interest rates two years ago, the average value of commercial real estate has decreased by 21%. Real estate observers are keeping an eye out for clues that it’s time to take advantage of the impending rate decreases. The finest prices will be found within “a six to eight-month window,” according to vice chairman of the real estate company CBRE Doug Middleton.

 

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