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But the decision Wednesday was overwhelmed by more global angst and both went lower, though the dollar stood mostly firm in the face of overwhelmingly negative sentiment. That in itself is a good sign.
The bank’s decision was a good one, because lower interest rates aren’t the answer to our problems. Lowering them again wouldn’t make much difference, but it would send a message that smells of panic. After an uninterrupted fall in our currency and an eroding sense of well-being, standing pat sends a strong message that offers a confidence boost. The sky is cloudy, but it isn’t falling.
Dropping rates from 10 per cent to 5 per cent is huge. On a $ 100,000 interest-only loan, that cut reduces a monthly payment by more than $ 400. But from 0.50 per cent to 0.25 per cent, the same 50 per cent cut is barely noticeable.
Bank of Canada opts to hold rate at 0.5 per cent
Assume the same $ 100,000 loan at the current rate of 3.20 per cent (prime plus half a point). The bank passes on 10 basis points of a quarter-point cut. Your new payment falls by $ 9. Don’t spend it all in one place.
Low interest rates have also hurt the prospects for savers and those on fixed incomes, mainly seniors. And they have led a generation of young people to believe that the discipline of saving isn’t worth the trouble. It has fuelled a housing boom and pushed consumer debt to record levels.
It has persuaded many people to reluctantly dive into stocks in a search for higher returns; those returns are there, but so is higher risk and volatility. If your time-frame is short, the lurches can be stressful.
Non-energy exports gained strongly between January and November, 2015. Though in aggregate they may be worth less than oil and minerals, that change shows what can happen.
The growth came from fish and seafood products, packaging, heavy trucks and buses, ships, locomotives and rapid transit equipment, and fresh, frozen and canned fruits and vegetables. It also came from rubber and finished rubber products and furniture and fixtures. A lot of that is destined for the U.S.
Another insight into the Bank’s decision comes from its revised forecast for economic growth, which it sees hitting 1.4 per cent this year. That’s lower than the International Monetary Fund’s forecast of just 1.7 per cent for us in 2016.
On the other hand, the Bank is more optimistic than the IMF about 2017, seeing 2.4 per cent growth versus 2.1 per cent. Both are certainly weak numbers, but they are still growth and in line with global norms. No recession in sight.
Also read: How to get the U.S. exchange rates
More columns by Adam Mayers