Zero per cent rate on the horizon?

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A former Bank of Canada advisor is once again predicting rates will eventually drop to zero.

“I wouldn’t be surprised if rates here end up where they are everywhere else in the developed world, which is basically at zero,” said David Wolf, a portfolio manager for Fidelity Investments at the Bloomberg Economic Series Canada conference in Toronto, according to Bloomberg. “I’m not really thinking recession here but I’m sure thinking sluggish growth.”

According to Wolf, an uptick and oil prices and a rising Canadian dollar will threaten the non-commodity export Poloz is banking on for economic recovery.

This is the second time Wolf has predicted rates will be lowered to zero.

“There’s a reason why rates are zero just about everywhere else in the developed world,” Wolf, who worked under former Bank of Canada governor Mark Carney, told Bloomberg in mid-April.

However, it was a prediction one leading economist scoffed at, at the time.

“Very doubtful [the Bank of Canada will eventually lower its rate to 0%],” Dr. Sherry Cooper, chief economist for Dominion Lending Centres told MortgageBrokerNews.ca at the time. “Would mean three more rate cuts and take mortgage rates down another 50 bps.”

The Bank of Canada will make its next rate announcement on May 27.

The key interest rate has been held at 0.75 per cent since a surprise cut from one per cent in late January.

For his part, Governor of the Bank of Canada recently expressed confidence in the Central Bank’s current forecast, intimating that the overnight rate will once again be held at the current mark.

“If there is no further downdraft, then we think our forecast of a partial rebound will hold up,” Poloz told reporters in Charlottetown earlier this week.
 
  • Darr Robbins on 2015-05-25 10:26:13 AM

    What Mr. Wolf is not yet discussing is that there are no longer any lower bound to interest rates altogether. The Swiss National Bank (SNB), the European Central Bank (ECB), Danmarks Nationalbank (DNB), and the Swedish Riksbank recently have pushed short-term interest rates to levels below the “zero lower bound.” This is unprecedented.

    A significant withdrawal from US treasuries by foreign creditors would force the FED to monetize the supply. This will dilute the USD further. Every western central bank would then lower rates to unseen levels to prevent their currency from appreciating against the greenback. Stating that it cannot happen in Canada is presumptuous and naive.

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