“To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual.”
– Oscar Wilde

Governor Carney will be hoping that the words of Mr. Wilde ring true in the coming months if his plans to revive the declining Canadian economy prove successful. In the face of decreased exports, poor progress in the US Government’s efforts to revive their economy and with little sign of the problems in the EU abating, the Bank of Canada (BoC) has opted against changing interest rates, as it announced on Thursday, last week. After raising its benchmark lending rate three times this year it came as no surprise to see Carney play it safe in the face of continuing international uncertainty and decreasing growth fuelled largely by a decrease in exports. The Bank of Canada’s Financial System Review for December highlighted the current plight of the European financial system as a key risk to Canada’s economic prospects. Although the report points out Canada has limited direct exposure to the sovereign debt of the likes of Greece and Ireland, were these problems to spread to more prominent members of the EU, such as Spain, it could reek havoc on the global bank funding markets. Given this level of uncertainty it would certainly seem prudent to follow a “wait and see” strategy and leave interest rates unaltered, until the degree of damage can be better understood. Continue reading →