July 16, 2008

Bank of Canada’s interest-rate “hawks” begin to ascend

Denise Holtby

Editor, Digital Media

CanaData chief economist Alex Carrick says that the Bank of Canada’s July 15, 2008 decision to leave the target overnight rate unchanged at 3.00% proves that the “hawks” among the Bank’s decision-makers are gaining influence.

The hawks are those who believe that interest rates should rise, says Carrick.

Now, emboldened by the bank’s forecast for a meagre 1% increase in economic growth in 2008 and an inflation rate of 4.0% by early 2009, they’re beginning to circle, looking for the bank to raise its target overnight rate sooner rather than later.

In a recent article, called “Accept It — The Bias for Interest Rates is Upward,” Carrick also touches upon the similar bias toward higher interest rates in the U.S., the Fannie Mae and Freddie Mac mortgage crisis and China’s explosive real GDP growth and whopping 8% inflation rate.

But it’s not all bad news. While the current economic situation looks bleak, some pockets of hope can be found, Carrick says.

“The worsening worldwide prospects for interest rates and growth are forcing a reassessment of the demand outlook for oil,” says Carrick. “This should lead to at least a temporary easing in the price.”

– RCD Digital Media

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