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Brett House, vice president and deputy chief economist of Fengye Bank, said he believes the central bank will cut interest rates twice by 25 basis points each in the first half of this year, according to BNN. His argument is that the Canadian economy is far from what the central bank predicted in its last economic policy report.
In the fourth quarter of 2019, the central bank forecast economic growth of 1.3%, but the data tracked so far show only 0.13%.
The central bank has left interest rates unchanged at 1.75% since October 2018. Central bank governor Borroz is scheduled to leave office in June. If he cuts interest rates before leaving, he must ensure that concerns about financial stability are addressed.
In response, House said that the biggest concern about financial stability is that Canadians already have too much debt and borrowing is growing rapidly, which will inevitably lead to faster loan growth once interest rates are cut. In fact, many people have already borrowed too much.
The recent decline in government yields on five-year and ten-year government bonds has dominated the low interest rates in the mortgage market. This has spawned a lot of excessive borrowing.
But Fengyin believes that the central bank still has room to cut interest rates to help businesses raise funds and stimulate economic growth in the business sector. House also stressed that this will be a short-term policy of the central bank, mainly to stimulate business. At the same time, the Government will continue to conduct stress tests.
As for the fact that people have been criticizing Trudo’s Liberal government for running deficits and accumulating deficits, House does not think so. He quoted the federal finance minister as saying that Canada’s debt-to-GDP ratio is still lower than that of other industrialized countries. Although the new policy will lead to an increase in the government deficit, it is still at a moderate level, so there is still room for fiscal interest rate cuts.
At present, consumers have spent too much, and businessmen are unwilling to invest because they are worried about the uncertainty of the economic environment, so fiscal expenditure has become the only source of growth. Of course, the government should also ensure that such growth can improve productivity in the long run, that is, whether the government can make the right and shrewd spending.
