Interest rates can be a fun thing. When Mark Carney made his interest rate announcement back in April, it gave a fairly positive outlook for the global economy; and that made everyone think that interest rates could be raised from their historic lows. Then with the last rate announcement in June, that positive outlook was gone and in its place was some somber news about the global economy – namely the crisis in Europe. That had everyone thinking that rates might not only remain where they are, but that the Bank of Canada might actually lower them. But, that’s something that the Bank governor, Mark Carney, just won’t hear of.
Speaking to a group of business professionals on Thursday in Halifax, Mark Carney touched on many economic factors; mostly the changes to mortgages in Ottawa that had just been announced that morning, and the Bank’s overnight lending rate.
Carney first addressed the interest rate issue, making it very clear that the Bank would not be lowering the interest rate, and that “our economy cannot depend indefinitely on debt-fueled household expenditures, particularly in an environment of modest income growth.” In short what Mr. Carney’s saying – we must stop treating our homes like ATMs, and home equity loans like they’re borrowing tools which never need to be repaid.
However, Mr. Carney also realizes that many borrowers need that low interest rate; and that it’s that rate that’s allowing those who can afford it borrow money when needed. This is what keeps the economy churning, and it’s why the Bank has kept the rate so low for so long. But, he also admits, something had to be done. And that’s why he stands fully behind Ottawa’s recent changes on the mortgage rules.
“In this context,” he said, “Canadian authorities are cooperating closely to monitor the financial situation of the household sector, and are responding appropriately.”
Being that it was just hours after Finance Minister Jim Flaherty announced the mortgage changes, Mark Carney continued on by saying, “Today, federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses.”
Along with his remarks, Mark Carney also spoke at length about the financial crisis in Europe, that looks as though it’s going to get worse before it gets better. He then pointed to the concern this holds for Canada, saying that the crisis overseas could spread to healthier areas, such as the United States, which would in turn have a direct impact on us here at home.
“Since our previous forecast in April, there has been a further slowing in global activity, including marginally in the U.S., and the first quarter was somewhat weakened. Arithmetically, what that means for 2012 growth in Canada, it would on the margin be down.”
