Came across an interesting article, recently, in the Financial Post. And if we are to entrust the sage wisdom of some of our most knowledgeable economic advisors – the days of the Bank of Canada posting a 0.25% interest rate, are just about over. Not a huge revelation, I know, but by the sounds of it, when the prime rate starts rising, it will happen fast. Noticeably fast.
The suggestion, now, is that it would be prudent for the central bank to raise the prime rate by 50 basis-points, from every scheduled rate announcement from July, 2010, onward. At the centre of this argument is the assumption that, ” the central bank needs to raise rates as aggressively in anticipation of the recovery as cut in response to the financial crisis. This would be in line with the Taylor rule, which dictates by how much a central bank should move its benchmark rate in response to inflation.”
Has our economy improved enough to warrant the Bank of Canada nudging the federal rate higher than 0.25% each announcement, from summer to fall of 2010? Well, time will certainly tell. But the indicators are there that we’re rebounding decently, as a whole. Slowly but surely.
I’m inclined to revisit the idea that we’ll start to see home buyers feeling like they’d better take advantage of the current rates, before the feds shake things up, and make it harder to qualify for financing. Already they’ve taken a few steps, and add a 50 basis-point hike into the mix, every few months, and the people who waited will be suddenly scrambling, or kicking themselves for not locking-in or renewing at today’s rates, sooner.
As usual, food for thought, and I know I’ll be keeping a close eye on how things shape out – especially come summer.
What do you think?
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By Jason Dodd, April 23, 2010 @ 1:40 pm
It seems when it comes to news we either have to pick one extreme or the other. Rates are rising so it has to be rapid and fast.
In my opinion the raises in Prime rate will be more measured and slower on the return up. Why? Twice in recent history Canada has tried to stray too far from the our Elephant to the south the US. Both times we reigned back to match them.
US is not in recovery mode yet and their mounting debt, foreclosures and bank failings are evident of much work to be done. We stray to far from our economic partner and we might get lost as well. Yes Prime will rise but quickly remains to be seen. Too much economic disparity with Canadian borders to go too high and fast on our prime. Our exports and manufacturing will struggle and even our oil and gas industry will suffer if we allow our dollar to go too high. Our Bank of Canada is walking a tightrope, better stay balanced for awhile while we figure it all out.