Low Rates Go On Forever

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    Today’s incredibly low interest rates seem to be going on forever, lasting longer and going lower than thought possible, says Avery Shenfeld, managing director and chief economist at CIBC World Markets. In the session ‘Canada: How Long for Low Rates? (Turning Japanese)’ at the CFA Society Toronto’s ‘2016 Annual Spring Pension Conference,’ he said looking at bond markets it would appear Canada is emulating the Japanese experience. Japan has lived with extremely low interest rates since the mid-’90s and rates there have even dipped into negative territory. However, part of Canada’s dilemma is that it is more sensitive to the troubles in emerging markets whose economies are leaking. Emerging markets are in recession collectively which impacts what they buy from the rest of the world. While the U.S. can withstand the slowdown in those economies, Canada cannot because it has had an impact on the price of the basket of commodities that Canada produces and sells to emerging markets. However, even when economies return to normal times, he said, interest rates will not get back up to four per cent. Instead, they will be around 2½ per cent as anything higher could start snuffing out wealth.