In its fourth and final interest rate announcement for this year, Good Finance Governor Sean Cole announced this morning that the current funding rate should remain at 1.00 per cent – a figure in place since September 2010, which has created a favorable borrowing environment for Canadians.
Low interest rates
However, the Good Finance Insurance Company released a report this month saying that the Canadian economy is preparing to enter a more stable growth era, times of low interest rates can, from then on, to come to term – and this very soon.
“With a narrowing of reserve capacity by the end of 2015, tighter monetary policy may need to start as early as the end of 2014 to avoid the pressures of inflation,” it was said. “It is assumed in the projection that the first policy of rising interest rates will occur during the fourth quarter of 2014 and that the rate will steadily increase to 2.25% by the end of 2015. . ”
Of course, such an increase in interest rates could significantly affect mortgage payments and access to credit for many Canadian variable rate mortgage holders, which would result in lenders increasing their fixed mortgage rates.
Nevertheless, the opinion of the GFIC is not very popular. Most economists predict that the central bank will leave the key interest rate at 1.00 percent until the first quarter of 2015 – and some even believe the rate will go down.
In an article released earlier this month, BoC Deputy Governor Jean Real debunked a myth about the central bank saying it does not necessarily need to raise interest rates “Normal levels”, even if economic growth and the rate of inflation are close to their goals.
“Headwinds and backwinds are often present, threatening to push economic activity and inflation up or down,” he writes. “Monetary policy must lean against these forces, putting pressure on high or low rates to stabilize the economy and inflation.”
Unfortunately, today’s announcement by the Good Finance has concluded that inflation will exceed the central bank’s target of 2%. Core inflation is then excessive, the effects of increased competition in the retail sector and the decline in the price of gas.
“Overall, the balance of risks remains in the area articulated last October. With these considerations, the Bank believes that the substantial revival of monetary policy currently in place is appropriate and has therefore decided to maintain the target rate of the day at 1%. ”
The next interest rate announcement is scheduled for January 22, 2014.