Chapter 7 : Money and the Canadian Banking System

Interest rate hike unlikely until July

Summary:

This article talks about the bank's interest rates and times it is likely to increase. Canada's primary securities dealers expect the Bank of Canada to maintain its key interest rate near zero until July at its earliest. One of the twelve Canadian primary dealers that participated in a Reuters poll predicted that there will be a 25 basis point increase in April, while two other dealers predicted that there will be a 25 basis point increase in June. Nine of the twelve dealers predicted that the increase won't start until July or later on that year. Overall, all dealers predicted that there will be an increase by the end of this year. The Bank of Canada has promised to keep interest rates unchanged until the end of June at least. This is as long as inflation remains. Increased gasoline prices pushed the annual inflation rate towards the central bank's two percent target in January. The bank's key policy rate is currently at 0.25 per cent, and wil stand at 0.75 per cent to 1.25 per cent by the end of the year.

Connections:
The connection between this article and the textbook is bank rates. Canada's primary securities dealers are expecting the Bank of Canada to keep interest rates on money borrowed, low. This would help businesses expand without worrying about going in debt due to the recession Canada's economy is experiencing. Currently the interest rates are low, so many people are able to borrow money, but as polls show, primary dealers are beginning to predict that there will be a rise in interest rates within a few months. This would reduce the amount of money borrowed from the Bank of Canada because not many people can afford to borrow money with high interest rates.

Reflection:
In my opinion on this article, I believe that the Bank of Canada should keep the interest rates low, but I also think there should be times the Bank of Canada should raise interest rates. Although an increase in interest rates would decrease the number of people borrowing money, the Bank of Canada still has to make money to help the economy. Canada can't expect the Bank of Canada to always leave the interest rate near 0 all the time because this wouldn't help improve the economy efficiently. Instead, it would slowly help the economy. I think that the Bank of Canada should find ways to juggle around the interest rates so that it can benefit the people borrowing money, the Bank of Canada itself, and the economy.

Source:
http://www.vancouversun.com/business/Interest+rate+hike+unlikely+until+July/2615348/story.html