Don’t get me wrong, I’m a fan of low interest rates. I like my mortgage and my line of credit (LOC) borrowing costs low like the rest of you. However, this low for this long? On the other end of the spectrum, as an investor and saver, super low interest rates are not good news, definitely not for this long.
Yesterday, the Bank of Canada (BoC) decided not to increase borrowing rates, which I think is the wrong move and sends the wrong message to Canadians. I feel this way for two reasons:
First of all, while the BoC acknowledged our overall “economic expansion” is “proceeding largely as expected” based on April’s forecast our inflation is running close to 4%, which is double the BoC’s target of 2%. That’s hot. Like most things hot, people get burned easily.
Second, while catastrophic natural disasters in Japan and man-made financial disasters south the 49th continue to plague global supply chains, I’m not convinced any future disaster(s) will ever be forecasted with any accuracy. I mean really, has mankind done a good job historically? That’s not a knock on humanity, just reality. History tells us we never see it all coming. Sure, predictions abound and are helpful but nobody really knows how big any crisis will be until it hits shore. There has and will always be something significant going on somewhere in the world; an event to overcome; an obstacle to work around, a disaster to manage. In my opinion, policymakers are best served to control domestic habits and avoid as much speculation as possible about “the other guy”. Otherwise, everyone is an expert on everyone else. I suggest the BoC works harder on controlling what they know and helping prepare themselves (and Canadians) fiscally for what they don’t. Sounds like the basics of any homemade emergency kit. Too bad our financial policymakers don’t eat their own cooking.
I would have been much happier to see a 25-basis point increase in the BoC lending rates, followed by another 25-point increase within the next year. This way, there is little impact to borrowers on the whole and investors/savers would be incrementally rewarded as well. Win-win. The central bank’s next attempt to get it right is scheduled for July 19th followed by a new quarterly forecast the next day. We’ll see if sharper heads prevail, but I’m not holding my breath. I own a mortgage and a LOC but I wouldn’t complain about a small “bump” in rates. Maybe I’m nuts.
In my opinion: A Hot Market + Cheap Money = Money Problems.
What do you think?