Bank of Canada raises overnight interest rate

April , 2006

Once again the bank of Canada has increased interest rates by 1/4 of 1 percent. This is the sixth straight rise in interest rates since September 7th , 2005 and has pushed up the overnight rate from 2.5% to 4%. The Canadian dollar exchange rate with the US dollar has responded by increasing to 88.73 cents US. The Bank in   its statement justifying its actions argues that world commodity prices are strong, domestic demand is strong and "the Canadian economy is judged to be operating at or just above its productive capacity." It admits that core inflation remains quite low at 1.7 % but points out that higher energy prices have kept the total CPI above the Bank's target of between 1 and 3 %.
Now what this means is that we can expect the Bank to raise rates again in May because it is quite likely that the bubble in energy prices will not have burst by then and clearly the Bank is clueless as to how to interpret the oil cartel and its impact upon our economy.

By raising rates in this way the Bank is more or less guaranteeing that unemployment among youth and in Quebec, the Atlantic region and parts of Ontario will remain high. Can we really accept that full employment in Quebec is 8% ? Is it acceptable that youth unemployment be over 10 %. Can we afford to destroy the Ontario manufacturing industry on account of the oil cartel ?

The Bank makes no reference to the unemployment rates in its release. If one looks at the leading indicators that they pay attention to only price expectations and capacity utilization rates and exchange rates are cited. Not a word about employment.

If one looks at the Bank Act they clearly are not following their mandate to pay attention to both inflation and employment. The time for reform is long overdue.