Kiyoko Fujimura

Buzzbuzzhome Corp.
March 1, 2011
Interest rates have been left unchanged. Pretty boring, right? WRONG! The intrigue is in the details (and the reasons) Mark Carney ultimately decided to leave the benchmark overnight lending rate at 1%.
Canada’s economy has been doing relatively well. Our housing market hasn’t collapsed, in fact it has flourished, which is something that can’t be said for many of our industrialized brethren. So you’d think that the Central Bank would want to cool the market– but they didn’t.
The thing is, there’s still a ton of uncertainty in the global economic landscape.
According to the Globe and Mail:

“The global economic recovery is proceeding broadly in line with the Bank’s projection in its January Monetary Policy Report (MPR), although risks remain elevated. U.S. activity is solidifying and remains supported by stimulative fiscal and monetary policies. Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook.”

In a nutshell, Carney’s not sure. Canada’s doing pretty well– commodity prices are high (i.e. gas is f*%$*%$ expensive) and household spending is increasing with household income. But, the Canadian dollar is still very strong, making our exports less competitive globally.
So interest rates remain at historic lows. And I’m not surprised. The housing market has been insisting for some time now that buyers should rush to beat the interest rate hikes– but I don’t see rate hikes coming down the pipe anytime soon. Check out this story from January that I wrote. . . interest rates are not going to skyrocket. If rates rose, international investment would flood the country and force up the Canadian dollar even further (since you have to buy our securities with our dollar). That would mean another blow to the export sector– and they definitely don’t need that.
Leaving the benchmark rate at 1% means that Canada is still in a state of expansionary monetary policy. Word.

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