Further rate increases are projected, though that could pose a problem as record-high household debt levels pose a serious threat to the economy.
For the second time in a row, the Bank of Canada has left the key interest rate at 1.0%.
The economy has slowed in recent months, and there are growing concerns about falling exports combined with the fact that we have the highest household debt in the world.
In a statement, the Bank said, “While higher interest rates will likely be required over time, (the bank’s) governing council will continue to be cautious,” adding that they would be”guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity and the dynamics of both wage growth and inflation.”
As usual, the Bank has tried to strike a carefully positive tone, despite numerous projections that the pace of growth is set to slow. Of course, the Bank has to generally spin things in a positive way, as a negative outlook can become a self-fulfilling prophecy.
The economy faces a difficult trap, made worse by the growth of taxes and the ballooning government bureaucracy which increases the cost of living. With Canadian households heavily in debt, any interest rate increase is a serious problem, while keeping rates low risks further debt expansions.
The solution is to reduce the burden on taxpayers by bringing in huge tax cuts for middle class and working class Canadians, while slashing job-killing regulations. That would put more money in the pockets of consumers, while enabling rates to be increased without causing economic damage.
Unfortunately, most provincial governments – and the Trudeau government – are moving in the opposite direction. Combined with upcoming massive tax cuts in the U.S., the risks to our economy continue to worsen.