Jim Flaherty says interest rates are heading higher regardless of central bank actions
Posted on Nov 18, 2013 in Mortgage Market Updates and NewsReuters
Interest rates are going to go up over the long term regardless of what central banks do at the moment, Finance Minister Jim Flaherty said on Thursday after the European Central Bank unexpectedly trimmed rates.
European Central Bank cuts rates to new low after deflation scare
The European Central Bank cut interest rates to a new record low on Thursday, responding to a slump in inflation way below its target that has sparked fears the eurozone’s economic recovery could stall.
The rate cut sent eurozone shares to a five-year high as traders bet a weaker euro and easier lending conditions would help revive the region’s economy and boost demand for stocks. U.S. markets opened slightly higher, but then slipped back into the red.
The bank cut rates to a record low earlier in the day and said it would prime banks with liquidity into 2015 to prevent the eurozone’s recovery from stalling.
Flaherty told reporters in Toronto that people “should anticipate over the long term, interest rates will go up regardless of what central banks do now.”
“The pressure on interest rates is clearly on the upside,” he added. “The period we’ve had of very low interest rates is an anomaly.”
Flaherty and the Bank of Canada, which has kept interest rates at a near-record low since September 2010, have repeatedly told Canadians to be careful when taking on debt since borrowing costs will eventually start to rise.
Flaherty also said the government would intervene in the Canadian housing market only in the event of bubble-like indicators, something he did not see right now.
Canada’s housing market, which avoided the crash seen in the United States, boomed coming out of the recession after the central bank cut its main interest rate to a record low.
But Canada’s Conservative government, concerned about the risk of a bubble and high levels of household debt, has tightened mortgage lending rules four times since the financial crisis in a bid to slow it down.
After the latest intervention, in July 2012, the property market cooled markedly, but sales and prices bounced back earlier this year.
Last week, Canada’s federal housing agency reduced its forecast for housing starts for 2014.
Flaherty said the government was closely watching the condo markets in Montréal, Toronto, Vancouver and Calgary.
“We have to be careful that we don’t get an artificial increase in prices, a bubble, because of speculation.”
© Thomson Reuters 2013