Remember back in April, when Bank of Canada governor Mark Carney painted such a rosy picture of global economic conditions? And told us that we could expect to see the Bank’s overnight lending rate increase in the near future because of it? This past week he’s been eating his words as he’s seen those very conditions take a nosedive; and he could have been very well dreading the announcement he had to make on Tuesday. Interest rates are not going anywhere for the time being. Which means the Bank has no weapons to stop the borrowing of HELOCs and loans in this country, and get Canadians to start thinking seriously about their debt.
Yes, that’s still a concern, but a paltry one when you consider what’s going on in the rest of the world – something the Governor must do when making his rate decisions. What those things are happening in every other place paint a very bleak picture; and it’s no doubt one that Mark Carney has no interest in contributing to.
In his statement to go along with the report Mark Carney said, “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate…in light of the reduced slack in the economy and firmer underlying inflation.”
The Bank also noted that the Canadian economy is mostly on course, with the exception that our inflation was a bit weaker than expected, falling below two per cent when the expected April outcome was 2.5 per cent. But really, it’s conditions around the rest of the world that have caused our rate to remain consistent for the time being.
Greece, a country that has been in a bad way for a long time, is once again looking at insolvency; and really only has their elections on June 17 to give them any kind of hope that things will change. Meanwhile, Italy and Portugal face their own debt problems and Spain put in a call to the G7 finance ministers this week to talk about their own insolvency and debt problems within their banks.
All of this points to the fact that our interest rates aren’t going anywhere. Not for now anyway, and for good reason. The only real benefit we would see from a hike would be to slow the amount of Toronto mortgages we’re taking out on condos – and one market does not make a good argument for a rate hike. But just when will those hikes come?
Derek Holt, vice president of economics with Scotiabank, weighed in on the matter saying, “In a perfect world, the bank would love to raise interest rates. But the growth profile continues to underperform the speed limit of the economy so you still get building economic slack that the Bank of Canada did not anticipate,” he said. “So more slack, more geo-political conditions, that gives the bank full course to leave rates alone for a long, long time yet.”
