Bank of Canada May be Running Out of Rabbits to Pull From its Hat...

That's a scary title isn't it?. However, think of this. What does the Canadian federal government use more than any other tool to inspire the economy or to stop a sliding economy; interest rates. When the economy is sliding they lower interest rates to counteract it and when the economy is robust they raise interest rates to slow it down. It is their #1 moderating tool. For the last 4 or so years economists and investment icons like Kevin O'Leary and many more have predicted that interest rates have bottomed out and will start to rise. However, the opposite has happened. Interest rates in Canada have decreased to where they are virtually "0". The overnight lending rate for the Bank of Canada is now 1/2 percent. Why? For a couple of reasons. First, the energy sector has dropped to such a dangerous low and second the energy sector has such a huge effect on the Canadian economy that they have to do something to stop the negative pull. Therefore they keep lowering the interest rates. Here is the problem. They virtually can't go any lower. Sure they could take it to absolute zero but then what? It's like trying to get rich by working more hours. Sooner or later you run out of hours. Right now BC is insulated from the rest of the country. We are leading the economy in Canada primarily because of immigration in Vancouver and migration in the interior. It does not look like there are any economic forces on the horizon to change those 2 things so I think we will be fine in BC. However, it will certainly be interesting to watch as 2016 unfolds.  

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Joel Ellams

Joel Ellams

CENTURY 21 Executives Realty Ltd.
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