Kiyoko Fujimura

Buzzbuzzhome Corp.
November 23, 2010

So Mark Carney, Governor of the Bank of Canada, stopped raising rates because of uncertainty about the US market. But inflation hit a two year high today, which will nudge Carney to reconsider keeping the key policy setting interest rate at 1%.

According to the Globe and Mail:

Canadian inflation flared up in October, rising at the fastest pace in two years…Consumer prices rose 2.4 per cent from a year earlier, Statistics Canada said Tuesday, topping forecasts for a 2.2-per-cent gain. It’s a sharp increase from September’s 1.9-per-cent rise, with half the increase stemming from higher prices at the pump.

That’s a problem. The mandate of the Bank of Canada is to keep inflation between 1 and 3 per cent. But, if interest rates are kept low, people will continue to spend. Why? Because it’s cheaper to borrow. Why does it matter? Lower inflation is where it’s at– mostly for people with investments. It makes your return less, because money itself is worth less. And Canada shouldn’t disappoint investors. Loose monetary policy may have experienced its heyday– at least for now. Although Canada’s been faring well, Carney is worried about the rest of the world.

So why the heck are we writing about it then? Well, if you have a variable mortgage rate you might see an increase in your rate sometime soon. Banks tend to anticipate interest rate hikes. We’ll see– but it might not be the best time to take out that second line of credit.

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