Bank of Canda doesn’t go the way of the RBA
In contrast to the Reserve Bank of Australia, the Bank of Canada decided to keep rates at the historical low level of .25% and the strength of the Canadian $ seems to be the main motivation. The RBA spent more time focused on the possible imprudence of keeping rates at emergency levels when it was no longer necessary and was afraid of the imbalances to the economy low rates can create instead of the ancillary impact of a stronger currency due to higher rates. The BoC in contrast is worried that the strong Canadian $ is working to slow growth that is under way in Canada and they thus believe that “the composition of aggregate demand will shift further towards final domestic demand and away from net exports.” The strong currency is also giving them comfort that it will subdue inflation pressures and thus gives them room to keep rates very easy.
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October 20th, 2009 at 12:24 pm
The BOC guy is a….wait for it….Goldman guy. No, really!
October 20th, 2009 at 12:55 pm
Not sure what the ultimate economic repercussions will be on this, but one notable effect of the low interest rate policy here in Canada (and particularly in Vancouver) is the re-inflation of the housing bubble. Prices are historically out of whack with fundamentals, but unlike in the US, are not coming down….
October 20th, 2009 at 2:59 pm
I don’t know if it will go as high John because a lot of the hot money in the bubble years a couple years back was coming from the US
October 21st, 2009 at 11:08 pm
Here is an interesting piece from a local Vancouver online news source: http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/
We might be busy manufacturing our own hot money here in Canada……