Today, the Bank of Canada announced that the bank rate is to stay at 1.75%, making Canada the highest interest rate of the G7. This essentially means that Canada may become a destination for domestic and international money, since our bonds and interest rate is still “competitive” in relation to other economies where interest rates are in the negative numbers. This means that if you put away money in a Canadian bank today, you gain more interest on that capital than if you put it into a country with lower or negative interest rates. If you want to know why negative rates even exist, please refer to this link.
Speaking of rates, the United States Federal Reserve just cut their rate today, announcing a figure “somewhere between 1.5% and 1.75%”. Beneath these decisions, there is a growing concern in monetary policy about the world’s economies, most of which have decelerated and are showing what some analysts would call “early signs of a recession”. A recession (two quarters of economic decline) scares a lot of people and it is exactly what central banks try to avoid from happening by tweaking the interest rates so the economy remains in movement.
Accordingly, ours is showing resilience amid these global uncertainties and the Bank of Canada expresses the following positive remarks:
- The economy is consistently creating new jobs
- Historically low unemployment
- More income due to wage growth
- High rate of immigration rebounding housing sector
- Economy favoured by consumer spending
In contrast, the Bank of Canada is concerned about:
- Weaker exports and lower commodity prices as a result of trade talks
- Weaker business investment
- Energy producing regions of Canada struggling
- Weakening commodity prices
- Depreciation of Canadian dollar
The Bank of Canada expresses unique sector and regional effects to these:
- Strong growth in Information Technology and Professional Services
- Tourism
- Education
- Health care
- Financial services
In conclusion, the Bank of Canada states that:
- 2% inflation is in line with their predictions and allows for close monitoring
- the new mortgage rules offset the potential for further financial issues, despite major increases in long term household debt
- Global trade conflicts continue to be a threat and are being monitored
- New federal fiscal policies have to be weighed in
In brief, these are some of the main points from October 30th’s Bank of Canada press release which you can find here. Pay close attention to the confidence in which they present our economy and also reflect on Canada’s regional and sector polarization, especially in the oil sector out West. We cannot stand by on these matters and I am disappointed that there are no talks or signs of solidarity for our neighbours in Alberta. Its odd that when an international crisis occurs, then we are immediately there to help, seems odd we don’t also look inward to our fellow Canadians. An economy is as good as its people, no?
moneyfruit.finance.blog 
Great post and an easy read. Why does the b.o.c and central banks change the interest rate?
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Hey Mikey, that’s a question I asked myself before starting this class. Essentially the central banks establish an interest rate depending on what the economy needs to avoid a recession or lack of growth. They meet once a month to either raise or lower the rate. The higher the rate, the more interest you will accrue by depositing money in a bank. This is when those magic formulas like compound interest really come to fruition (no pun intended). On the flip side, a lower interest rate will not yield much. This can also incentivize people to not save money, and inject that into the economy through spending by way of access to “cheap” money. When interest rates are low, you also owe less per month on the principal amount. On the contrary, when they’re higher, you owe more. What you need to understand is that the current economy is fuelled in a large part by debt because most of the times, economies do not have the capacity to grow at the rates they want to grow without borrowing money. There are many unintended consequences of both lowering or raising the interest rates and maybe I can elaborate on that in another article. In the meantime, pay close attention to your bank statement, especially your savings account. See how much the interest rate is for deposits and how much the interest rate is for borrowing money at your bank. Due to the Bank of Canada (B.O.C) changing the rate, you will find that both are relatively low at the moment but have been increasing ever since 2009. As mentioned in the article, Canada has one of the highest of the historically lowest interest rates around the world at the present moment. I hope this offers more insight and feel free to ask more follow up questions!
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