BoC rate cut strategy not working—analyst

by |
The benefits of the government’s current strategy of cutting interest rates are far less than what the government imagines these to be, especially amid a backdrop of a weakening economy and currency.
According to finance commentator Rob Carrick, the fact that the Bank of Canada has seen little tangible success in the eight years that it has lowered interest rates should give it pause. Such measures have not prevented the continuous fall of the Canadian dollar.
“Helpful for exporters, a weak loonie is a tax on families and snowbirds who must change Canadian dollars into U.S. currency,” Carrick said in his column on Sunday (January 17).
Carrick warned that the weakening of the currency has shown no signs of stopping. Expected positive developments such as greater economic growth have been few and far between, he argued.
“In fact, lower rates are hurting a lot of people more than they’re helping. We have to at least acknowledge this as speculation of yet another rate cut grows,” Carrick said.
Per industry observers, another rate cut could take place during the next rate announcement on Wednesday (January 20).
A crucial side effect of a possible cut is an artificial boost to the housing market, stimulating greater activity while introducing no improvements to the per capita purchasing power of Canadians.
“As far as housing is concerned, low rates are the finance version of performance-enhancing drugs. Pumping yet another rate decrease into the market isn’t healthy,” Carrick noted.
Most importantly, Carrick said, lowering interest during a time of flagging stock markets and rising bills is extremely harmful for long-term consumer and economic confidence.
“Cutting rates tells people that things are deteriorating even more,” Carrick said.
  • Walid Hammami on 2016-01-20 9:33:34 AM

    We had weak loony for years before this situation. Manufacturers and producers benefited from it with a narrow minded vision. Instead of investing the profits to increase productivity by improving processes and investing in technology, they spent the money in extra bonuses and expenses.
    Rate cut is definitely not the solution to the problem because it's not the root cause.

  • Steve on 2016-01-20 1:27:39 PM

    government goal for US exchange as been 67 cents for about 2 years. I'd say that their strategy is working just fine.
    parity with the US dollar has not been a goal of any government. High US dollar encourages Canada to supply itself, makes manufacturing plausable...
    As well, I doubt this guy has ever paid rent, so he doesnt understand how happy these "hurt " people are to get into a home

  • John on 2016-01-20 5:44:07 PM

    The Bank of Canada strategy will not work if the banks don't lower there rates in conjunction with the Bank of Canada. The Banks are more concern about there profits then the Canadian economy.

  • Doug on 2016-01-20 9:52:00 PM

    I don't think our manufacturers can complain now that they can't sell to the US our biggest trading partner. We had seen this coming for a couple of years now. With low rates we may not outperform but we do not run the risk of chronic defaults on the debt side. I applaud the bank of Canada for doing this. This should spur some renewed vigor in manufacturing activities. Let's also keep more of our dollars at home and reinvest in Canadian recreational and hospitality businesses. Let's get the Americans to come here now and spend some of their money.

  • Daniella on 2016-01-22 2:28:35 PM

    I know some guys in Florida, they just simply can't wait to take some vacations in Canada, to take advantage of low currency. They want to go tobogganing.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions