Canada Raises Rates another 0.5%, Highest In Developed World

[Economy 53,143]

https://www.bnnbloomberg.ca/bank-of-canada-hikes-half-a-point-to-1-5-warns-of-more-moves-1.1773238

 

Canada increased interest rates by another 50 basis points (0.5%) taking the rate to a total of 1.5% now

 

At 1.5% Canada currently has the highest rate of any major advanced economy although if you count very small economies New Zealand has an even higher rate of 2%

[Economy 53,143]

Interest Rates in developed World in case anyone is Interested:

 

New Zealand: 2%

Canada: 1.5%

USA: 1%

Norway: 0.75%

Singapore: 0.5%

Australia: 0.35%

Sweden: 0.25%

Japan: 0%

Denmark: -0.45% (negative)

European Union (Euro Users): -0.5% (negative)

Switzerland: -0.75% (negative)

 

[FfFfFfFF 58,816]

Your threads are my perpetual reminder that I don't understand how economy works.

[Economy 53,143]

24 minutes ago, FfFfFfFF said:

Your threads are my perpetual reminder that I don't understand how economy works.

Most people don't know much about it that deeply...

 

But then they still have strong ass opinions about it politically

[Delulu Rogers 7,678]

Does this mean house prices should decrease? 

[Economy 53,143]

41 minutes ago, Delulu Rogers said:

Does this mean house prices should decrease? 

In theory yes. And here in Canada in the Toronto area in particular they are finally tanking down some 20% in the suburbs already since rates started to go up

[Tyler1992 2,357]

5 hours ago, Economy said:

https://www.bnnbloomberg.ca/bank-of-canada-hikes-half-a-point-to-1-5-warns-of-more-moves-1.1773238

 

Canada increased interest rates by another 50 basis points (0.5%) taking the rate to a total of 1.5% now

 

At 1.5% Canada currently has the highest rate of any major advanced economy although if you count very small economies New Zealand has an even higher rate of 2%

I do not understand Econ at all!! Is interest rate increases good?

 

[Economy 53,143]

33 minutes ago, Tyler1992 said:

I do not understand Econ at all!! Is interest rate increases good?

 

It's not good or bad per say, they go up and down at different stages of economic cycle. A rising rate has good and bad impacts. It's definitely bad for sure if you are going to renew a mortgage or take out a loan cuz it means the prime rates (which are influenced by Central Bank Rate) go up as well. It also means businesses and even the Government debt increases in interest rates

 

But rates go up and down to try and make economic growth as sustainable as possible and inflation as close to a standard 2% target as possible (of course there's factors beyond the Central Banks Control that can throw these goals off target such as impact of other economies, decisions by the government, world shortages and disruptions etc)

 

When the economy is improving and demand is rising and that coincides when its getting close to it's productive capacity (when unemployment rate is getting low and there's less people to hire) you start to get inflationary pressures. Rates are increased to try to cool demand, try to slow down inflation, and reduce credit creation (which can also get out of control during good times).

 

Failure to raise rates when economy is strong can result in what's called "overheating" where demand is too strong and factories and service businesses can't keep up and you get a lot of inflation pressures. You can also get too much borrowing and credit creation when economy is strong and consumer confidence is high.

 

When economy tanks or goes into recession rates are lowered to stimulate borrowing and demand and help lower people's interest payments as well to free up more income. Inflation also tends to drop during recessions leaving room for lower interest rates.

 

Rates going up and down helps smooth business cycle. If rates were the same all the time the booms and busts the economy goes thru would be even more extreme as they were in the early decades of the industrial revolution before modern Central Bank Monetary Policy was invented

 

Of course because of the war and pandemic disruptions this isn't your average economic cycle. Inflation shouldn't be this high yet at current demand levels but because of those war and pandemic disruptions, we are hitting our maximum capacity of producing goods and services at a lower ceiling than usual. It's resulting in a lot of inflation and forcing Central Banks to start raising rates to try and cool it down