The next drop in the Bank of Canada’s interest rates will likely be the last. Will it finally work?
Bank of Canada governor Mark Carney is widely expected to shave another half-point off the bank’s overnight rate on Tuesday, bringing it to a record low 0.5 per cent. The cut will be the seventh since Carney took over the central bank last February. Now that the rate is effectively at zero per cent, an eighth cut seems unlikely. The problem, though, is that the economy isn’t responding to Carney’s shock treatment. Meaningful access to credit is still hard to come by and interest rates on bank loans remain relatively high. It generally takes 12 to 18 months for cuts to interest rates to have an impact on the economy and it’s now been 15 months since the Bank of Canada started cutting rates. If they don’t start working soon, Carney might very well have to start looking at other options, like printing more money.