What the Bank of Canada is really saying
By Kevin Press, BrighterLife.ca
The Bank of Canada announced its overnight rate target would stay put at 1% yesterday. This had been signaled strongly by Bank Governor Mark Carney and others long before this new Monetary Policy Report was released, and so no-one was surprised by the news.
Of course the actual press release is packed with coded jargon and deeply meaningful phrases like “subject to downside risks.” In the interest of plain language, here’s my take on what they’re really trying to say.
| The Bank said: | The Bank meant: |
| Uncertainty is increasing. | Things have gotten worse in Europe – and maybe in China too – and it’s unlikely our export-heavy economy will continue to recover at the pace it has during the last couple of years. |
| Global capital markets are tightening. | The global financial system is closer to another 2008-style liquidity crisis than it was last fall. If the eurozone breaks up, all bets are off. |
| European leaders will “contain the crisis.” | The region’s politicians will eventually do a deal to save the euro but not until so much political pressure has built up that they have the political cover they need to make real sacrifices. |
| The U.S. recovery will progress at “a more modest pace” in the short-term. | We can’t count on our old friend the U.S. consumer to sustain our recovery. Not anytime soon. |
| Commodity prices (with the exception of oil) will drop lower than had been forecast in the Bank’s October report. | We can’t count on our commodity sector to prop up the rest of the Canadian stock market because the emerging economies are slowing down. The market for our commodities isn’t as strong as it has been in recent years. |
| On balance, Canadian exports won’t provide much economic growth. | Canadian exporters can’t compete outside a couple of foreign markets and this is a major problem for our recovery. |
| Consumers will continue spending. | Personal debt levels are way too high, but the economy can’t take a rate hike. Ottawa is making a bet that it can maintain low rates and at the same time manage consumer debt with strongly worded messages about the likelihood of higher interest rates in the future. |
| The “profile for inflation is marginally firmer.” | Given all that central banks have done to stimulate the global economy, higher inflation should be the result. Despite conventional wisdom though, a significant increase is not expected in the short-term. |
When was the last time you reviewed your personal economic plan? Talking with your advisor can help ensure you’re on track to meet your financial and retirement goals. Don’t have an advisor? Visit Sun Life Financial Advisor Match to help you find one in your area.
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