Monday, September 20, 2010

Bank of Canada blunders


Bank of Canada ups rate

Bank of Canada ups rate 25 bp.

The Bank of Canada has probably blundered by prematurely raising its overnight interest rate to 1 %. Although the rate hike is only 25 basis points, it is the third straight rate hike and has already put upward pressure on the Canadian dollar thereby making exports more difficult to sell in an already difficult environment. It will also undermine a very soft recovery somewhat further. Amost every time the central bank has dogmatically hopped on its hobby horse of fighting phantom inflation it has instead engineered an unnecessary recession.There were two such very damaging recessions in the past three decades. We have still not emerged properly from the last one which was caused not so much by the Bank but by the financial bubble's collapse. This rate hike was a decision that needed some rethinking. Regrettably it appears that the bank has not done it.

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