There are increasing odds of an interest rate hike next month after comments from Bank of Canada Governor Stephen Poloz.
Poloz made the comments in an interview with CNBC.
Said Poloz, “Rates are of course extraordinarily low. It does look as though those cuts have done their job. But we’re just approaching a new interest rate decision so I don’t want to prejudge. But certainly we need to be at least considering that whole situation now that the excess capacity is being used up steadily.”
As reported by Bloomberg, the Bank of Montreal is now predicting a July rate hike based upon Poloz’s comments.
However, Bipan Rai – a foreign-exchange and macro strategist at CIBC – disagrees with predictions of a July interest rate hike. As Rai told Bloomberg, “The market is moving to price in 55-60 percent chance that the bank moves in July but the odds should be more skewed towards 30 percent. It’s unlikely that the Bank of Canada will want to front-run second-quarter growth and strengthen the Canadian dollar further.”
Serious underlying problems with Canada’s economy
Ever since the 2008 Financial Crisis, governments around the developed world have slashed interest rates and printed immense amounts of money. Yet, growth has been almost non-existent, and has been stuck far below historical trends.
In Canada, household debt has risen to record levels, while government debt has also exploded. This leaves our economy incredibly vulnerable. And yet, low interest rates and the massive increase in debt has not led to strong economic growth. Usually, rock-bottom interest rates would have led to an economic boom, or at least a sustained and noticeable expansion.
But without strong growth, the Bank of Canada has no good options. If they raise interest rates the debt burden will rise and our economy could easily fall into a recession. If they keep rates low, debt will continue expanding.
The reason there are no good options is that the problems with our economy run far deeper. For years our manufacturing base has been devastated, as our economy dangerously shifts away from creating anything tangible. Regulations strangle businesses and job growth. Taxes and fees take more of our money. “Free trade” deals include hidden sections that erode our sovereignty. Politicians (and central banks) increasingly serve a global agenda that benefits the biggest corporations and international banks at the expense of our middle class and working people. We have outsourced so much that we are now increasingly vulnerable due to our lack of homegrown production capacity.
Those problems can only be fixed with a wholesale mindset shift away from globalism towards an economic approach that focuses on our national interests first and foremost.
Until that change happens, our economy will continue to be far weaker and more vulnerable than it should be, no matter what the Bank of Canada does.