Bank of Canada and Interest Rates Essay

The deposit of Canada has indicated that it has concerns over inflation being too low. (Parkinson). However, inflation has been rising and the Canadian parsimoniousness has strengthened over the last several months. Keeping arouse rates too low over a long level of time may have a tendency to over-inflate the economy and constitute asset bubbles while also creating pockets of greater debt, not dissimilar to those that contributed to the ball-shaped economic collapse of 2008-2009.Although the camber of Canada has iterated and reiterated its current neutrality with respect to relate group rates, economists predict that current conditions may require the commit to move more(prenominal) quickly than it may akin to bump the rates in the conterminous several months. (Parkinson). Canada is currently facing a lodgement bubble like that which occurred in the United States, prior to the massive global downturn of 2008-2009. (Altstedter). main office prices have been steadily i ncreasing along with the size of the debt that homeowners are pickings on in order to afford the increase in housing prices.Earlier this year, the Banks governor, Stephen Poloz, had forward guidance language that cautioned that pertain rate hikes could be in the offing aloof from Bank of Canadas form _or_ system of government statements. (Kawa). Since the removal of the language, inflation has begun to increase and the Canadian Dollar has alter somewhat. This provide contribute to further expansion of the housing bubble in Canada. In order to slow the growth of the housing bubble and keep or delay its eventual bursting, the Bank of Canada will likely be forced to raise interest rates.Bank of Canada Will Not transfer Interest RatesOne of the reasons Bank of Canadas Governor Stephen Poloz removed forward guidance warning of the potential need to increase interest rates from the Banks policy statements was to highlight the neutral perspective he and the Bank are embracing with respect to interest rates. (Kawa). Poloz say in a September statement that he feels that the global economy is performing largely as expected and that the housing industry in Canada was strongerthan anticipated. (Isfield). This month, Poloz stated that he feels that the upside and downside inflationary risks are, at this time, balanced and that, as such(prenominal), there is no need alter interest rates in the foreseeable future assuming the status quo is not disrupted. (Parkinson).The Banks current neutral stance on interest rates, has now been reiterated and strengthened, to such an extent that it is possible, to ultra-neutral. (Isfeld). Because of Polozs ongoing statements with respect to interest rate neutrality, the banks removal of interest rate hike guidance from its policy statements, and the perception that the risks between and inflationary upside and an inflationary downside are comprehend by Poloz and the board to be balanced, it is unlikely that interest rates will be changed in the next six to twelve months by the Bank of Canada.Works CitedAltstedter, Ari. Housing Bubble Will Force Bank of Canada to revitalize Rate Hike Warnings Soon, Pimco Says. Financial Post. 1 Oct. 2014. Web. http//business.financialpost.com/2014/10/01/housing-bubble-will-force-bank-of-canada-to-renew-rate-hike-warnings-soon-pimco-says/ Isfeld, Gordon. Bank of Canadas Stephen Poloz Turns Ultra-Neutral On Interest Rates. Financial Post. 3 Sep. 2014. Web. Kawa, Lucas. Say Goodbye To former Guidance From The Bank Of Canada. Business In Canada. 14 Oct. 2014. Web. Parkinson, David. Bank of Canada solace Fears Low Inflation Despite Balanced Outlook. The Globe And Mail. 3 Nov. 2014. Web.