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Loose Money Continues in Canada

Bank of Canada on April 11, 2011 said they would be keeping Interest Rates the same for another month, and will keep their key overnight rate at 1.25%. This is not exactly very surprising given we are in the middle of an election, and inflation (for now) seems to be under somewhat control (although watch out this month’s numbers I suspect are going to be quite interesting).

Here is a telling statement from the Bank of Canada yesterday that suggests interest rates will be on the rise sooner:

While underlying inflation is subdued, a number of temporary factors will boost total CPI inflation to around 3 per cent in the second quarter of 2011 before total CPI inflation converges to the 2 per cent target by the middle of 2012. This short-term volatility reflects the impact of recent sharp increases in energy prices and the ongoing boost from changes in provincial indirect taxes. Core inflation has fallen further in recent months, in part due to temporary factors. It is expected to rise gradually to 2 per cent by the middle of 2012 as excess supply in the economy is slowly absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

So, interest rates will be going up because Inflation rates are going to be on the horizon very soon. The relative strength of

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the Canadian Dollar is going to make raising rates a little more tricky (since Canada is mostly a country of exports), so that may help slow interest rate increase velocity, but the increases are coming, that is for sure.

Have you taken advantage of these low rates, and paid down your debts? Now is the time to think about that.

Last Year?

Remember last year at this time, when the overnight rate was only 1/4%? That means rates have gone up over 500% since then—amazing, eh? What were the rates two years ago at this time? They had just hit 1/4% (overnight), so we had almost a year of completely free money. It’s amazing how long rates have been so remarkably low, but I think these days of cheap money will soon be coming to a close.

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