Friday, April 25, 2014

Bank of Canada: Low Interest Rates Here to Stay?

One of the major themes on this blog (and in real estate) has been interest rates.

Artificially low interest rates to stimulate the economy after the dot com crash of 1999 combined with  emergency level rates after the Great Financial Crisis have created a generation that knows nothing but low, low interest rates.

(Some, like uber Gold bull Jim Sinclair, have predicted interest rates can't be allowed to rise)

And now the new Bank of Canada Governor, Stephen Poloz, has come out and said low interest rates may be here to stay.
Canadians can expect to enjoy relatively cheap borrowing costs for some time to come — even after the economy returns to full capacity and the Bank of Canada starts hiking interest rates, bank governor Stephen Poloz said Thursday.

Poloz says it will likely take until early 2016 before the economy is firing on all cylinders and inflation is back to two per cent. But even when it does Canadians shouldn't expect a sudden increase in interest rates to fight inflation, he told a business group in Saskatoon on Thursday.

"Our economy has room to grow and when we do get home, there is a growing consensus that interest rates will still be lower than we were accustomed to in the past," said Poloz.

"Both because of our shifting demographics and because after such a long period at such unusually low levels, interest rates won't need to move as much to have the same impact on the economy."
Poloz says the new normal will be lower rates than in the past and people should get used to that.


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  1. Meanwhile, they quietly keep trying to put the CMHC toothpaste back in the tube....thanks entirely to James Flaherty who, now that he's dead. will be spoken of in hushed, reverent tones and remembered as a "fine little Irishman" ----- and not the little hooligan who left a bag of flaming economic dog poop on our porch.

    1. Don't step on it with your boot, Ted!

      Shut up, devil woman!

    2. I did publish a piece just 3 weeks before Mr F. died about the faulty (IMO) ideological Conservative mania for balancing the Federal budget when there is a deep trade imbalance:

      It's too bad there is so little public discussion in the mainstream about how the monetary system works. The best place I know to try and get a handle on the reality that "If society wants more private sector saving (which is the source of investment capital), then either the Federal government must run a bigger deficit or exports must increase." is:

      In Canada, exports don't look like they will increase with China slowing and the U.S. producing 2x Canada's Oil production:

  2. We are witnessing the blow-off phase of decades of bad economic policy and poor monetary decisions based on the framework of unsustainable debt based fiat financing. Interest rates will never be raised; it now impossible.

  3. Financial repression and the biggest misallocation of capital in world history. This will not end well. How much is Canada printing to maintain this distortion of economic history?

  4. save the internet

  5. Average VancouveriteApril 26, 2014 at 6:05 PM

    Interest rates? CMHC?

    I thought it was the Asians.

    1. Anything that increases demand for RE in Vancouver contributes to the problem. Low rates, CMHC and wealthy offshore buyers are all partly responsible.

  6. Kyle bass made a tonne of money forcasting the fall of us re. Listen at 35:40
    Hayman Global Outlook Pitfalls and Opportunities for 2014 by Kyle Bass

  7. listen to 35:40

    1. When this thing happens, we really won't have any choice but to just sit here and take every bit of verbal abuse and scorn we're going to suffer from the U.S. politicians and public:

      1) We have really, REALLY earned it, and

      2) For all the backhanded ridicule Flaherty heaped on them in speeches around the world for several years, they do deserve the satisfaction.

  8. There really is no difference between cheap lending and sub-prime lending in a market like this, either way the money is being used recklessly. You take a place like the 240th corridor in Maple Ridge, there is more new construction then you could possibly believe, meanwhile there are Onni homes sitting there that have not sold in over 3 years. Builders have to keep building, otherwise they are out of work. This exact same thing happened at the top of the market in the US. It's only a matter of time.