With rumors of another rate cut, Rob Carrick points out 8 reasons he thinks that’s a bad idea. The very first reason? The Looney will fall even further against the US dollar.
For eight years, the Bank of Canada has been trying to encourage economic growth by lowering interest rates. It’s so not working.
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. It could come as soon as Wednesday, which is the date of the next rate announcement from the Bank of Canada.
The central bank considers the entire economy when it sets rates. Now, let’s look at things from the point of view of everyday people. Here are eight reasons why the Bank of Canada shouldn’t cut rates any lower.
1. The dollar will fall even more: The most disruptive force in personal finance right now is the falling dollar. That’s because it’s hitting us all in a vulnerable spot – our grocery bill. Helpful for exporters, a weak loonie is a tax on families and snowbirds who must change Canadian dollars into U.S. currency. Last week, the dollar fell below 70 cents (U.S.) for the first time since 2003. A lower dollar adds downward momentum.
Read the full list over at the Globe and Mail, although a number of them are directly connected to a dropping looney.
The one group that a dropping looney should help are exporters as their products get cheaper for foreign buyers, but Jayson Myers, the head of the countries largest exporters association says don’t bother.
“Interest rates are low already. A little bit of dollar stability would be better.”
As an interesting aside, in 2002 when the CAD was hitting record lows Treasury Board President Scott Brison said it was
“a pay cut to every Canadian, a drop in our standard of living and a reflection of the fact that Canadians are getting poorer as Americans are getting richer under the watch of the government,”
Scott Brison is now a key cabinet minister and top economic aide to Trudeau.
A hat-tip to southseacompany for the links.