Bank of Canada holds key rate at 1%

The Bank of Canada held its trend-setting Bank Rate at 1.25 per cent on June 19th, 2011. This marks the seventh consecutive policy decision in which interest rates have been kept on hold.

The Bank has been warning for some time that interest rates will ultimately have to rise, but hinted more strongly in this most recent announcement that a hike was coming by removing the word “eventually” as to when that might happen.

The Bank said, “To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2 per cent inflation target.”

The Bank noted, however, that downside risks to the outlook remain elevated, with debt woes on both sides of the Atlantic, and that the outlook for a gradually improving domestic picture assumes these issues will be contained. As regards the European situation the Bank said, “The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.”

The Bank’s forcast for economic growth in Canada was little changed from its April forecast. The Bank now expects the economy will grow 2.8 per cent this year. This was revised slightly from the previous forecast of 2.9 per cent. The Bank kept its 2012 and 2013 growth forecasts unchanged at 2.6per cent and 2.1 per cent respectively.

Also unchanged were expectations that the output gap, a measure the spare capacity in the economy, would be closed by the middle of next year, and that headline inflation would remain above 3 per cent in the near term due to temporary factors, namely higher food and energy prices.

The core rate of inflation, which strips out those volatile items, hit 1.8 per cent in May owing to “persistent strength in the prices of some services.” The Bank now expects the core rate to “remain around 2 per cent over the projection horizon.”

As of July 19th, 2011, the advertised five-year lending rate stood at 5.54 per cent. This is down 0.05 percentage points from 5.59 per cent on May 31st, when the Bank made its previous policy interest rate announcement.

The Bank will make its next scheduled rate announcement on September 7, 2011, and many experts had already been forecasting a rate hike at that time. Given the slight change in tone in this most recent announcement, bets for a September hike will likely be increased further. That said, a lot could happen between then and now, particularly given the magnitude of current downside risks.

(CREA 07/19/2011)

Calgary company defrauded investors of millions

A Calgary company raised millions from investors for real estate deals with companies which didn’t actually own the properties, and funneled $7 million from one specified project to others, an Alberta Securities Commission hearing heard Monday.

“This is a case about deceit,” ASC lawyer Tom McCartney told the panel.

Shire International Real Estate Investments Ltd. and its president and sole director Jeanette Cleone Couch, as well as related entities, made false and misleading statements in an offering memorandum related to property in Hawaii and “perpetrated a fraud” on investors relating to a Calgary site, the ASC alleges.

Couch, who is representing herself and the companies at the hearing, said she will make an opening statement after the ASC finishes with its evidence and will call one witness.

The charges against Shire and Couch relate to two offering memorandums.

One was called the Hawaii Fund, which the ASC alleges raised about $1.3 million from 107 investors between January and June 2009, and the other was Bearspaw at 144th Avenue Ltd., which the ASC believes raised between $16 million and $20 million from 844 investors between August 2007 and June 2008.

“All these projects failed and it appears most investor money has been lost,” McCartney told the hearing.

In the case of the Bearspaw development, the ASC alleges that while more than enough money had been raised for the $13.8 million purchase price, two mortgages were taken out on the property.

As well, the ASC says more than $15 million was transferred from the Bearspaw account to Shire and of that, according to investigators, at least $7 million was used for transactions not related to Bearspaw, including other real estate deals connected to Couch and her daughter,

and a $100,000 payment to Couch.

The Bearspaw property is in foreclosure, the ASC said.

The Hawaii Fund involved two deals on Maui which the offering memorandum stated were to be purchased from companies which in fact didn’t own them, the ASC alleges.

Investigator Viola Pickering, who testified Monday, said Shire first came to the ASC’s attention when the owner of one of the Hawaii properties contacted them, because the two luxury homes had not been purchased as stated.

As well, the numbered company Shire said it had a deal with for the other purchase (although that company didn’t actually own the property, which contained 32 condo units) had as its sole director Shire’s vice-president of special projects, a fact that wasn’t disclosed, the ASC said.

Couch’s husband had previously been listed as a director of that company.

Pickering told the panel that when they launched the investigation, they were “primarily concerned with misrepresentation and fraud.”

She also said Shire’s promotional material stated they were expecting returns of 43.6 per cent over two years on the two Hawaii deals.

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