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Is The Bank Of Canada Catching Up To World Events?

This week, the Bank of Canada announced it is no longer leaning towards raising interest rates as the pressures on the Canadian economy have abated. These pressures are inflation, household debt, and general economic strength. (1)(2)(3)(4)

Is this really a surprise? Canada is not in a vacuum. Canada exports much of what it produces, and all of the countries who import Canada's goods have slow growth. You have the Eurozone, who has been in and out of crises for a few years, China and India who have been slowing in the last year, and the U.S. who has been struggling since 2008. One way or another, unless Canada eats what it produces, it will eventually have a slowdown.

What took this long for the Bank of Canada to realize that it does not need to raise interest rates? In all fairness to the bank, Canada did not have much deterioration in its economic numbers compared to the rest of the world. Since Canada's banks were deemed to be stronger than the developed world's banks (think Europe and the U.S.), Canadians were not hit with the same borrowing constraints as most countries. Combine that with the strength of commodities over the last few years, and the Canadian economy was largely unaffected compared to the rest of the developed world. However, unemployment is still high (5), and the growth numbers are modest (6), so Canada is fairly well off, but for how long?

Does this mean that a turning point has been reached and Canada will now need a large stimulus to keep it afloat (like QE North)? It appears that the world malaise is catching up to Canada, and Canadian leaders should take notice. Since Canada's debt is also relatively high per person (7), the downturn may be around for quite a while once it takes hold. Should something improve for any of Canada's trading partners, this possibility can change the trend as well.

Sources:

1) http://www.bankofcanada.ca/monetary-policy-introduction/key-interest-rate/

2) http://www.cbc.ca/news/business/story/2013/01/23/business-canada-interest-rate.html

3) http://www.thestar.com/business/article/1318837--canadian-interest-rates-will-stay-low-but-bank-of-canada-says-it-overestimated-growth

4) http://online.wsj.com/article/BT-CO-20130123-709877.html?mod=dist_smartbrief

5) http://www.tradingeconomics.com/canada/unemployment-rate

6) http://www.tradingeconomics.com/canada/gdp-growth

7) http://www.huffingtonpost.ca/2012/11/23/national-debt-canada-600-billion_n_2177590.html

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.