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    Canadian Centre for Policy Alternatives
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The Progressive Economics Forum

Bank of Canada Holds Rate Steady

The Bank of Canada released it’s quarterly Monetary Report today, and held rates firm at 3/4 per cent.

The Bank cut growth expectations for 2015, but expects Canada’s GDP to rebound in 2016. Much of this rebound will depend on a growing U.S. and global economy, and on the ability of Canadian exporters to capture a bigger share because of our lower dollar.

The Bank’s estimates for growth also depend on maintaining strong consumer demand, which may be difficult to maintain given high levels of household debt and lingering labour market weakness.

The underlying thinking behind the Bank’s optimism is that the negative consequences of falling oil prices hit quickly, and any benefits from the lower dollar will take longer to appear. So it looks bad now – growth stalled in 2015 Q1, but we’ll rebound eventually.

It’s also worth noting that government will only contribute 0.2% to GDP growth in 2015, pretty measly given the opportunities for public infrastructure investment. Take a look at the FCM pre-budget call for investments in clean water & public transit.

Enjoy and share:

Comments

Comment from Larry Kazdan
Time: April 15, 2015, 7:00 pm

Fiscal policy is the best counter-stabilisation tool available to any government
http://bilbo.economicoutlook.net/blog/?p=18797

“The reality is that policy makers have very little idea of the speed and magnitude of monetary policy impacts (interest rate changes) on aggregate demand. There are complex timing lags given how indirect the policy instrument is in relation to its capacity to influence final spending.

Further there are unclear distributional effects – creditors gain when rates rise, debtors lose. What will be the net effect? Central bankers do not know the answer to that question.

Monetary policy is also a blunt policy instrument that has no capacity to target specific segments of the spending population or regions.
***

Fiscal policy expansion is always indicated when there is a spending gap. It is a direct policy tool ($s enter the economy immediately) and can be calibrated and targetted with more certain time lags. Liquidity trap or not, fiscal policy is the best counter-stabilisation tool available to any government.”

Comment from Paul Tulloch
Time: April 16, 2015, 5:04 pm

Great points Angella-

Two things stand out to me on the macro side of these interest rates

– one of the things that we must consider here is the housing markets across the land- year over year wages are tanking over the last year- what is the best method for helping people in the short term and flood them with cash? Pump the housing market more- housing values posted a 10 % increase last week- what does that do to many across the land- allows them more access to liquidity from a rising asset value. It is how Canada and most of the industrialized world made it through the last 10 years- and in Canada’s case without too much of a downturn. So if you ask me- this is all about mismanagement of the housing market – that allows people even more access to low cost credit to push the housing market and the bubble. Which helps Harper in the short run.

This is sheer mismanagement with some very risky outcomes.

That said I am not saying we should be raising rates- however – what I would encourage- and this leads to the second point.

2- we need investment by both the public and private sectors into the economy- we need renewal and a focused attempt at rebuilding an industrial strategy and these low rates help that- as the opportunity cost of borrowing and extracting productivity gains in brown field assets and new very low cost asset development in green field is at an historic low space.

Future generations will look at us like we were moronic for not investing in green energy and greening the economy during this period- with so many loud loud messages telling us to invest.

Smaller countries like Canada can make the investments and develop an economy to lead the world into whole new areas of economic outputs that it is so mindnumbing that instead we have billions and billions of our future tied up in a rusting tar sands in northern Alberta.

Canadians should be so disgusted with our economy – yet- desperation and complacency seems to be setting in, as Harper is still high in the polls.

We have work to do-

If anybody needs an economist/ data scientist- for this election- let me know- yet here I sit working on numbers that have little to do with the future.

Reminds me of my Statcan days.

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