Interest cuts good now, could hurt later

by | Jan 30, 2015 | Editorial

There was a collective jaw dropping across Canada last week when Bank of Canada Governor Stephen Poloz announced that he was cutting interest rates to 0.75 per cent, as “insurance” to soften the impact that collapsing oil prices will have on the Canadian economy.

The banks followed suit a week later, reducing their lending rates, which influences borrowing costs on such things as mortgages and student loans.

This, in conjunction with a low Canadian dollar, has been seen by many as a boon to Ontario’s manufacturing-heavy economy, which traditionally benefits when the loonie falls below the greenback.

But there are also worries that lower interest rates will prompt already heavily-indebted consumers to borrow more, and send a surge through the nation’s real-estate markets, in particular the booming GTA.

The average Humber student may be asking — what does this mean for me?

It is a mixed bag. The lower interest rates will benefit those of us who have lines of credit from banks, as interest payments will go down – albeit by a very small rate, but every little thing counts.

But look out for those credit card balances – you may want to run them up now, but making those minimums will be a problem in the future. The inevitable heart attacks that arise from opening fat credit card bills is also a drain on our health care system.

If you’re learning technology or a trade, it’s good news. But hold off on the dancing in the streets, because the economists’ predictions of increased manufacturing investment need to come true.

Still, if there are more jobs in the offing, once you have your sheepskin in hand you may be walking into a job sooner than usual.

And many economists also say that the housing market is about to have a big collapse. Bad for some, certainly, but beneficial for those who, in a few years, may be searching for their first home — provided interest rates don’t skyrocket in the interim, in which case getting a mortgage will be really, really expensive. Basically, it would mean you’re working for your house for the rest of your life.

So while we applaud Poloz’s efforts to try to stabilize Canada’s economy, we wonder what impact this will have on young people trying to get their start on the future. Will economists’ rosy predictions of lots and lots of new manufacturing jobs come true? Or will nobody be able to afford a house?

Only time will tell.