Monday, July 20, 2015

Kevin O'Leary ‘Really Hates' Bank Of Canada's Rate Cut

The Huffington Post Canada  |  By Daniel Tencer  07/16/2015
Kevin O’Leary can’t state strongly enough how much he disagrees with the Bank of Canada’s decision to cut interest rates.
“There’s nothing good about what happened yesterday,” the famed investor and TV personality told CTV News, referring to the Bank of Canada’s decision Wednesday to cut its key lending rate.
“It signals to the world that we have a weak economy, that we’re worried about it, and our dollar is devalued,” O’Leary said on Canada AM.
“I really hate this decline [in rates], I thought it was a big mistake,” he said.
Many say the point of the rate cut was to lower the value of the Canadian dollar. Lowering Canadian interest rates below U.S. ones makes the loonie less attractive to investors. And a lower dollar should make Canada’s exports more competitive.
But O’Leary says a lower dollar is bad for Canada because it will hurt productivity by making it more expensive for companies to buy new equipment.
“You want to produce your widgets for less by buying a piece of equipment. You can’t do that now, because the dollar has gone down because of the rate decline,” he said.
O’Leary doubted the rate cut would make much difference to consumers, for whom the two major issues, he said, are job creation and wage inflation. “On both of these measures, we’re failing.”
“Does a 25 basis point decline in rates change any of that? The answer is no. We have more systemic problems in our Canadian economy that aren’t going to be affected by [the rate cut]. There is more damage done by this rate decline than good.”
O’Leary isn’t the only one who feels this way, though he may be making his case more strongly than others.
“If you need to borrow you are already in the market and another 25 basis points will do little to make or break a financing decision,” CIBC economist Benjamin Tal wrote recently.
“And so far, the money that is borrowed goes largely to cash as opposed to investment and thus adds little to economic growth.”
But consumers might not even see the full 0.25 percentage point decline in lending rates, however little difference it makes.
All the big Canadian banks followed the BoC’s rate cut and dropped their prime lending rates on Thursday, but they all dropped them by 15 basis points, or 0.15 percentage points — only three-fifths the BoC’s rate drop.

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