It is very hard to get into the heads of those involved in these decisions. Sometimes the difficulty is determining whether or not they will act, others it’s how high/low they will go. Tomorrow, the debate will be the latter, not the former.

Nearly everyone on Bay Street is calling for a cut from the BOC’s key interest rate tomorrow. Nearly everyone is calling for that cut to be 50 basis points, bringing the overnight rate to 3.00%. The only problem is nobody seems to agree on if the Big 5 private banks will follow by cutting their Prime lending rates by the same amount.

The entire purpose of the BOC rate cut would be to stimulate the economy by making money cheaper. Loans would have lower costs (interest) and would encourage spending. If the banks refuse to lower their rates, it would signal that they believe that their interests are above those of the economy, that their profits are more important than the financial and economic well being of their customers. A greedy, disgraceful and obnoxious move.

Ever since the beginning of the Credit Crunch™ people have been scarred and moved their short term investments from Commercial Paper & Banker Acceptance to Treasury Bills. As the Canadian Govt is still running surpluses, supply has been tight and rates tumbled as the price rose (classic supply/demand). The 1 month T-Bill has been as low 1.2% institutionally a few weeks ago. This morning with the new injection, we’re back in the 2.90% range. Just a quick note that although many sources will be quoting that 1 month Bill at 2.90%, as a retail investor, expect a much lower quote. I’ll save that explanation for another day…. unless you ask my in the forum.