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Low Interest Rates Until 2015? The PBO Thinks So!

Ever since 2010 we’ve been hearing that interest rates are “going to rise next year!” This has always brought with it a new form of panic, of people worrying about debt (although we all should be anyway) and buying homes based on an interest rate that’s actually much higher than today’s posted rate (another good practice to abide by at all times.) But now, we’re told to hold off our panic a little while longer. Because the Parliamentary Budget Officer believes that interest rates are going to remain on hold until 2015. That’s the year after next, for anyone that’s keeping track.

It was in the bi-yearly economic and fiscal outlook that was released on Monday in which the PBO stated that government surpluses this year would not be near the $2.5 billion in additional surplus that the Conservative government predicted we would see. Instead, the PBO says that they expected the economy to perform “well below its potential GDP through 2015 and, as a result, the unemployment remains relatively stable, averaging 7.3 per cent over 2013 to 2015.”

And unemployment is one of the biggest factors taken into consideration when it’s time to talk about interest rate hikes. With it remaining so high over the next couple of years at least, the PBO knows that the Bank of Canada will need to keep rates low.

“Consequently, PBO expects the Bank of Canada to maintain its policy interest rate at 1 per cent until the second quarter of 2015 before gradually, but steadily, raising its policy rate,” the PBO continued on in their report.

The entire country boasted about how well we fared during the recession, but we’ll have to be careful it seems if we want to avoid another one – and we’re still not out of the woods yet. The unemployment rate has yet to drop levels below where it sat before the crisis, and manufacturing and exports have also not yet returned to pre-recession levels. However, we most likely won’t enter another crisis.

The PBO does believe that the economy will regain speed, with real GDP growing by 2.6 per cent between the years of 2015 and 2017. The also predict that the jobless rate will decline to 6.3 per cent in 2017.

And just as the PBO may have some different ideas than the Conservative government about where the country is right now, they also have differ in when they think the economy will once again see the surplus. Finance Minister Jim Flaherty has been very vocal about getting the books back in balance by 2015, with a surplus that year of $800 million. The PBO however, believes that with the spending cuts and revenue increases that are planned, the country will see a surplus closer to $3.7 billion.

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