Once again, Bank of Canada Governor Mark Carney has acted prudently with his refusal to increase interest rates.This reiterates his already stated position that inflation in Canada while increasing is not of a major concern AND it is being specifically caused by uncontrolled energy futures.He has once again challenged the Harper government to address the root cause of inflationary pressures, something they have neglected to do to this point in time.
An increase in interest rates is being called for by the banks and investment houses because it will increase margins on lending while at the same time attract foreign investment.This will go directly to profits not to alleviating the problem of inflationary pressures.Any increase in interest rates will be counter to the needs of the consumer for a couple of reasons.
First rate increases will increase the cost of borrowing thus reducing disposable income for purchases needed elsewhere.The Canadian housing market is already beginning to cool and to raise rates will certainly pull it to a near stand still.The consumer will not be able to afford the mortgages or the associated costs of uncontrolled energy costs.There is no confidence on the side of the consumer that costs will be stable hence, no purchasing.
The automotive sector is already twisting in agony and a further increase in rates will only worsen their situation.
Consumer costs from food and clothing to luxuries of entertainment are all affected by energy. Energy is used for production, shipping, storage and even basic business operations.Business functions on it and on borrowed money; credit extended by the banks.
Mr. Carney is fighting inflation by holding the line and staying the current course.One only needs to look at Europe to see the effects of both inflation and rate increases.
Secondly, the credit crisis originated in the Unites States now world wide is far from over.The banks need cash to stay liquid and a rate increase will serve that purpose but as I pointed out, it is to the detriment of the consumer.Mr. Carney is telling them that they had a break in the overnight lending rates in order to take steps to protect themselves against the credit crunch, and rate increases are not the solution to their internal business practices.
Thank you Mr. Carney.Finally a bank governor with his finger on the pulse of reality.