Mark Carney, Governor of the Bank of Canada holds up a new plastic twenty dollar bill a during a one on one interview with Sun Media's David Akin at the Bank of Canada offices in Ottawa Oct 24, 2012.
Credits: ANDRE FORGET/QMI AGENCY
Mark Carney says an interest rate hike is "less imminent."
Imminent is a word that has threatening overtones, as in: "The girl playing on the street was in imminent danger of being getting hit by a truck." When the governor of the Bank of Canada, the most powerful banker in the country, says that there is no immediate threat, that's a good thing. But it doesn't mean that the truck isn't still coming down the road. He just doesn't know when it'll hit.
What Carney has said in the past is that he's worried about Canadians taking on too much debt. This past week he seemed less worried. Perhaps he feels that the message is sinking in and Canadians are finally heeding his warning.
Or are they? And is he sending the right message? Isn't he really saying that he'll keep rates low ... so go borrow more? More borrowing lets the consumer spend more and that gets the economy growing.
On one hand, Carney is right. Household debt in this country is at a dangerous level. For every dollar of income, each Canadian has more than $1.60 in debt. That's high.
But it's not like Canadians are out buying Gucci handbags like they're going out of style. Retail sales are fairly flat, up something like 1 or 2%. Canadians seem to be buying things they really need - maybe replacing that seven-year old car, or perhaps taking a vacation, something they've skipped for the past couple of years.
Real estate has been hot for a few years now, far exceeding inflation. So, while rates are low, Canadians can rightly ask, why not borrow for my house? I can afford it. And real estate seems to continually go up, even after it softens, as it has for the past couple of months.
Here's what Carney didn't say. He didn't say that higher mortgage payments are going to hurt the consumer. But they will and he knows it. He didn't say lock in your mortgage rate now, while it's low, and get your finances secured. Carney knows that each individual has the right to choose a variable rate and while rates were falling, that was a smart strategy.
Unlike many central banks around the world, the Bank of Canada's sole mandate, its only job, is to control inflation. Carney is worried that inflation is coming. He wants to be ready to pull the trigger on his chief weapon in fighting inflation, that being higher interest rates.
Carney is giving ample warning: interest rates will go up. Just when that happens, like the truck on the street, he doesn't know. He just wants to protect the consumer. It just makes business sense.