Low interest rates will persist: TD chief economist

The low interest rate environment in Canada likely will persist over the next few years, with the Bank of Canada likely to stick to small incremental increases, says TD Bank Financial Group’s chief economist.

Rates between now and mid-2015 will likely only increase one percentage point, Craig Alexander told an industry crowd during the National Insurance Conference of Canada in Quebec City on Oct. 1.

The Bank of Canada is constrained by a halt to rate increases in the United States, leading it to likely increase rates only incrementally (by about a quarter-point at a time) over the next few years, Alexander explained. “The Bank of Canada would be thrilled if businesses took advantage of low rates,” he added.

While the Canadian economy is faring comparatively well with much of the world, economic situations overseas and south of the border have created a risk filled environment, he commented. “Europe has been the slowest moving train wreck of all time,” he noted.

This year has gone as well as possible for that area of the world, Alexander said. However, a continuing financial crisis is what will push politicians to take necessary steps to fix the economy, he argued. As soon as a financial crisis begins to abate, policymakers often stop rolling the ball forward, he noted, and a financial crisis is what will move policy forward.

Overall, Alexander said he expects the Canadian economy’s growth rate to be in the range of 2% to 2.5% over the next couple of years, similar to what is expected in the U.S. The Canadian dollar will likely average par with the United States over the next three years, creating some competitive challenges, Alexander said.

In the U.S., drought has had a major impact on the country’s GDP, and that hangover will continue, he said. The country is also struggling with high unemployment numbers and slow job creation numbers. Despite that, there is still pent up consumer demand. The average age of vehicles for example, is over 10 years, leading to more potential auto sales, Alexander said.

The National Insurance Conference of Canada continues Oct. 2.