Why the Bank of Canada Won’t Raise Rates Tomorrow

Mirror, mirror, on the wall! Who’s got the clearest crystal ball?

(I doubt it’s me, but here goes)

The Bank of Canada is not going to raise rates tomorrow. Not just because I say so. Or because the Financial Post says so , but for a few other key reasons:

1. The Bank of Canada said they wouldn’t

2. Our economy is recovering, but emotionally we’re far too scarred from the recession to handle a nasty surprise.

3. Canadian Bond Yields, which are market driven, haven’t gone up in anticipation of a move. They always go up in anticipation of a move – and then go back down again if they’re wrong. Bond traders don’t expect a surprise, so I don’t either.

Despite the fact that Canadian real GDP went up 5% last year and Prime Minister Harper sees encouraging economic signs , there is still plenty of risk to the recovery so raising rates too soon could be a cold shower just when things are starting to heat up.

If I’m wrong I’ll probably just delete this post and replace it with a different one. smile