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Canajun Finances Home » Money remains loose from Bank of Canada for June

Money remains loose from Bank of Canada for June

Given all the gloom and doom, the Bank of Canada has decided it would be imprudent to raise their critical overnight rate (at least for this month). I think that for now, this is how things will have to remain, as the economies of the world (but especially here in Canada) are at best described as fragile, and a tightening of the loose money policies might be enough to do damage to any “recovery” that might be percolating right now.

Although economic growth in Canada was slightly slower than expected in the first quarter, underlying economic momentum appears largely consistent with expectations. However, the composition of growth is less balanced. In particular, housing activity has been stronger than expected, and households continue to add to their debt burden in an environment of modest income growth. Despite external events, business and household confidence has held up and domestic financial conditions remain very stimulative. The contribution of government spending to growth is expected to be quite modest over the projection horizon, in line with recent federal and provincial budgets. The recovery in net exports is likely to remain weak in light of modest external demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.

So that phrase in bold is the Bank saying, housing prices continue to climb and folks continue to build up debt, even though their pay is not increasing much. Does this sound like something I (and other financial folks) have been saying (we doom and gloomers do enjoy to gloat from time to time).

As usual their is an interesting caveat at the end of this article as well:

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. 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, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.

If things go badly we will be upping our rates, but for now we don’t feel the economy can withstand this kind of shock, but expect rates to change in the next 4 to 6 months (is my interpretation of this statement).

Bank Rate Graph
Overnight Rate Graph 2000-2010

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