Over the past year, the Bank of Canada has been warning almost monthly against the dire risk of high consumer debt levels. This warning message is very valid for individuals that have maintained high debt and have little or no tolerance in their family budget for higher monthly payments. Once interest rates do start to increase the end result for some highly leveraged mortgagors will be as though they had built their financial house upon the sand. The tide of promised changing interest rate increases may be not as imminent as predicted but are only delayed.

Against the backdrop of a current risk-filled global environment we should not expect to see any significant interest rate policy change from the Bank of Canada. With Britain tipping back into recession with two quarters of negative growth, the US showing less than stellar job growth numbers and Europe with its continued economic problems, there is no support for the premise of strong economic growth. The US has huge debt and deficit issues, Greece has become a financial basket case while Spain, Portugal, and Italy also carry huge debt combined with high unemployment and slow growth. The Bank of Canada will be very sensitive to our domestic economic growth and how the effect of a potential interest rate increase will affect the value of the Canadian dollar.

As anticipated interest rate increases fail to arrive this spring, lending institutions might be forced to start rolling back mortgage rates increases to gain market share. This could be an opportunity to consider looking at long, fixed term residential mortgage rates as being a safe haven.

In the interim the Bank of Canada will remain waiting in the wings and will continue to rattle its saber as to the evils of consumer debt. The eventuality of interest rate increases is not in question, but the Bank of Canada may be forced to wait until the second act of this economic play before being able to perform based on today’s global economics. As to the timing of the second act my guess would be not until the spring of 2013.

Paul E. Croy