Interest rate rises again
Posted Sep 8, 2010 03:06:53 PM.
This article is more than 5 years old.
The Bank of Canada has raised interest rates for the third time in as many months. Governor Mark Carney made the announcement this morning, taking the central bank’s trend-setting interest rate to one per cent.
While economists had predicted the rate hike, there is some surprise that Carney offered no hint as to future plans for rate hikes. Peter Chandler of Canaccord Wealth Management tells 570 News Carney is walking a tightrope.
“Trying to keep the economy stimulated but deal with the potential ultimate boogeyman, which is inflation,” Chandler says.
While the Canadian economy is doing better than the US in relative terms, Chandler says that’s because we weren’t as leveraged as the states when the recession hit. We also have a wealth of resources which are in demand right now. But Chandler says we can’t ignore the fact that the US remains our largest trading partner and, as the saying goes, “if the U-S has the sniffles, we have pneumonia.”
Chandler says today’s interest rate hike has winners and losers, depending on which side of the ledger you currently sit.
“If you’ve got debts, whether it be a mortgage, lines of credit or student loans, it’s going to cost you more to service that and it means you’re going to have less discretionary income in your life to spend,” Chandler explains. “If you’re on the savings side of the ledger, it’s a bit of a glimmer of hope. You’re going to get a little bit more return on your investments and fixed income vehicles today.”
Chandler says there is also a slight impact on investors because higher interest rates represent more competition for the stock markets.
“The lower the interest rate environment, the more likely it is that people will gravitate towards stocks to get competitive returns,” Chandler notes.
The central bank admits future economic growth will be “slightly more gradual” in Canada and is blaming weakness in the U-S economy.
