For the average person every time they hear about the Bank of Canada cutting the interest rate it creates a sense of excitement. For some it will spur them out into making purchases that they may not have otherwise felt comfortable making.
In many cases the individuals do not realize the significance of the interest cuts. All that they are aware of is that it is a positive step perhaps in respect to their financial situation. What they don’t realize is that when it comes down through the channels that it may really not be all that beneficial to them.
Of course it depends on the percentage of the cut. If the Bank of Canada were cutting an interest rate from 15% to 10%, then this is a huge amount of money and is definitely going to have an impact on any individual. However, if you are talking about a 0.5% cut from a rate that is 0.75% then yes this is still the same drop ratio but the meaning is far less. The interest rate has already been at a significant low so cutting it at this time does not really add a lot of significance to the individual. It may bring the borrowing costs down slightly and it is true that every little bit counts.
For businesses who are at a stage where they need to make investments, they will borrow the money no matter what the interest rate is as they have a specific requirement that they have to carry through with. So a small interest rate cut is a welcome but does not become the mitigating factor on whether they will borrow or not.
For most young people they are comfortable with the low interest rates and have not been subjected to the high interest rates from the past. So these small decreases in the interest rate really doesn’t have an impact on their way of thinking.
The government only has two real resources to utilize to stimulate the economy. One is as just discussed being the monetary policy. The other is a policy which allows them to spend money in order to create a demand for jobs, and creating ways for people to have more money to spend. The current government doesn’t have the funds available to create a fiscal policy that is going to allow for this, so it basically leaves the government with their only other choice of which is the monetary policy concerning the interest rates. According to the government in their opinion, Canada is over the worst of the sagging economy and it now just needs to take the steps to recovery.
