The Bank of Canada says it will hold its key interest rate at a historic low likely until 2023, and that long-term plan is not surprising to the past-president of the Kamloops Chamber.
Joshua Knaak says we’re well into the COVID-19 pandemic and the physical effects of it.
“I don’t think we’ve even really begun to see some of the financial effects of that. I was just looking today that France is going back into a lockdown, Germany is going back into a lockdown, and hopefully that’s something we can avoid here in Canada. But yet we are all connected, and when there’s going to be economic hardship in Europe and other places, I think we’re going to continue to feel that here in Canada.”
The Bank of Canada is holding the line for its interest rate, at 0.25 per cent until sustainable inflation is reached, which it doesn’t expect to happen until 2023.
Knaak says economic hardship is going to continue in Canada, and the low interest rates will help incentivize new borrowing.
“I think the government is also trying to provide some stability, in just ensuring to consumers and businesses that interest rates are going to remain low. And so if you’re considering anything that involves borrowing, go ahead and move in that direction. Because rates are likely going to stay very low for the time being.”
He also points out government subsidy programs will not last forever, which are a lifeline for many businesses.
“Interest is another one of those pretty significant expenses. So yes, I think they are connected. And as there is a shift in reducing some of these programs, then it will important that expenses overall don’t increase or we don’t get a compound with rising interest rates and also a reduction in some of the supports.”
Knaak’s business, FIT Financial, brokers money for companies. And he says, ironically, some of the businesses to find money for during the spring were ones not impacted by COVID-19.
“Because if you were impacted, there were government funds, government back loans, all kinds of things. But if you weren’t impacted, it was even more challenging because there was uncertainty around what was next.
“This doesn’t necessarily impact the underwriting uncertainty of it, but it certainly helps businesses make a decision, by saying ‘at least we think we’re going to have some certainty around the cost of these funds.'”
He also explains the low rates are helping to spur economic activity from consumers, pointing to the red-hot Kamloops housing market and many people taking advantage of record-low mortgage rates as as example.
