Bank of Canada governor Mark Carney is issuing a broad warning to Canadians, firms and governments that the financial and economic crisis is far from over and they need to rein in their appetite for cheap money….” global recovery is so weak that advanced nations may need to keep interest rates super-low for a long period, and the U.S. may have to resort to yet another round of printing money.
“(But) cheap money is not a long-term growth strategy,” he warned. “Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks, induce a search for yield and delay balance sheet adjustments.” For Canadians, he noted with alarm that household credit has grown by seven per cent since the recession’s trough, compared to a 3.5 per cent decline in the U.S., perhaps an indication that Canadians believe the easy ride on debt payments will be permanent.
The Bank of Canada will set interest rates based on inflation, not on whether a large swath of Canadians have taken on too much debt, he added. In fact, he suggested the bank may tighten even in a low-inflation environment to discourage risky behaviour. The next interest rate announcement is Jan 18th, 2011.
Filed under: General Mortgage News
