Should Interest Rates Be Coming Down?---ZT

Player99

By Peter Kinch

- e  H: m( u+ pThere's been a lot of speculation about what's going to happen with interest rates over the next few months. On the surface all indications point to a downward trend.
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As a rule, if inflation goes over 2%, the Bank of Canada will increase rates to cool things off and if it goes below 2%, they have room to lower rates.
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Well, December's Core Inflation numbers are expected to drop below 2% for the first time in 16 months. So this would suggest that our Central Bank would be in a position to justify a rate decrease.

As for Long term or fixed rates, they're governed by the bond market.  Generally, the spread between the 5 year bond and the 5 yr mortgage should not be higher than 1.3%. At present, the spread between the two is at a 30-year high of almost 2%.
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# U! _' s( I4 V% F* D So does that mean we should see the long terms rates falling?
6 L: o7 @- n* w/ x$ TNormally I'd say yes - in fact they should have already come down, but they're not.

- p4 ]( P9 {3 O) m: `- II hate to blame it all on the Sub Prime crisis again, but the fact is, there is a continued cycle of credit tightening across the board and it's costing banks more to borrow the money that they lend out. So you guessed it, those costs are being passed on to us.

So bottom line?
  X& m7 ]9 }. f4 b2 h$ pThere's definitely room for a drop in rates but I think the banks are using the current spread as a buffer to play a wait and see game, so we might not see any drop for a few months.
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To hear the Sunday business report, tune into News1130 on Dec 2 every 4 hours starting at 5:26AM.

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Peter Kinch is the author of "The Mortgage Minute™", heard daily on NEWS 1130 and is a regular featured guest on the Friday Morning Business Report with Russell Byth, and on City-TV's Realty Television.