The Bank of Canada Makes Good On Promise

It was never a question of if but when and the when was today.

Though Mark Carney, Bank of Canada governor, had stated initially that rates would not rise before July 1st, the Canadian economy has been on a tear and decided to raise the rates 25 basis points to 0.5%.

Recent reports indicate the Canadian economy grew by 6.1%, ho-hum by recent China standards but astonishing for Canada.

Apparently 109,000 jobs were created in April alone. As someone who is losing hers and seeing firsthand how difficult it is to find anything, I can’t help but wonder what kinds of jobs (not all jobs are created equal), where are these jobs (apparently not in Toronto) and if this is a net figure.

The rate increase has been much anticipated and Canada is the first of the G8 countries to make that move.

A 25 basis point jump on top of historically low but unsustainable rates is very small but it will be interesting to see what the psychological impact will be.

The current real estate boom can be partially attributed to the anticipated increase in interest rates, how quickly will sales drop and what will be the ripple effect on the rest of the economy?

The TSX has taken a bit of a stumble out of the gates this morning but that could also have something to do with the international unrest caused by the raid of the Gaza-bound aid flotilla resulting in the death of 10 activists and continued economic uncertainty in Europe.

Canada has largely been able to mitigate the damage resulting from the U.S. credit crisis but how many Canadian cash-poor homeowners are on the razor’s edge and have not locked in their rates? It sounds crazy (and it is) but 25 basis points could be the difference between keeping one’s head above water and sinking like a stone.

A friend of mine is two-thirds of the way towards obtaining his real estate license and we both feel, given the tenuous state of the global economy, we will not see anything approaching double-digit interest rates. They have to go higher but depending on your circumstances, it may still be better not to lock in. The bottom-line is will you be able to sleep at night?

Inflation is a worry and it doesn’t take that much to tip the scales either way. The current rate should remain constant until the results of the next quarter- by then we should have a better idea how this baby step towards more realistic rates will affect the economy.

They haven’t put the brakes on the economy, but are slowly easing off the gas- cautious and probably prudent.


~ by angryegg on June 1, 2010.

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