Rates stay low

The Bank of Canada has sent a bold message to the global financial markets by leaving the bank rate at 0.25% and indicating a commitment to keeping rates at or near zero for a considerable time in to the future.




The lack of consumer confidence is keeping the Bank of Canada on hold much longer than expected. This low interest rate environment could be in place till well into next year.



My concern going forward is that the real estate market could become substantially over valued due to historically low interest rates. If low rates are available over a long period of time it becomes ingrained in the price and creates a false pricing model that will have to be deflated at some time. The Bank of Canada has to walk a very fine line and be ready to act quickly in order to avoid a made in Canada real estate collapse.



The relatively low Government budget deficits will give the Bank of Canada slightly more flexibility relative to other central banks. Deficits at all levels of Government in Canada are low when compared to other industrialized nations offering more economic resilience going forward.



Now is not the time to be making bold investment moves as the global economy is still not showing consistent signs of growth. Central Banks are offering accommodating economic policy but the financial services companies globally are not following through with access to capital. This lack of cooperation by the major banks is going to delay a strong economic recovery and puts all of the stimulus measures at risk of failure.



This near term economic uncertainty will be supportive of gold and will keep currency markets volatile over the coming weeks or possibly months.