Quantitative Easing…is the Bank of Canada Considering it?

The Bank of Canada uses interest rates to stimulate the economy in a downturn.  In times like we are currently experiencing, with a slowing economy, slowing housing market, job loss, etc., the Bank of Canada lowers its Prime Lending Rate to stimulate the economy and encourage people to purchase real estate, complete home renovations, make larger purchases etc.  

The Bank of Canada has been lowering the Prime Lending Rate for the past year in an effort to stimulate the economy and ease the slow-down in the economy.  When the BOC announced a .25% decrease in Prime last week, it took Canada’s overnight rate to 0.25%. We have run out of room to boost the economy through the lowering of interest rates.  The lowering of interest rates usually unlocks credit and urges people to take advantage of that unlocked credit; however, this time it has not been as successful in years passed.  The credit has remained fairly tight and people have not responded as well to the interest rates as the Bank of Canada would have hoped.

A Prime Lending Rate of 0.25% is about as low as the Bank of Canada can go, and it now has to turn to other measures to stimulate the economy.  The Quantitative easing we are all hearing about may be the next move by the central bank.  More on Quantitative Easing in the next post.