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.