Paul Martin's Business Update - January 28th

Paul Martin's Business Update - January 28th

With inflation at historically low levels, the specter of higher interest rates – the primary tool in fighting inflation – seems like a far-away dream but inflation is not the only factor at play here.

Like any economic equation where supply and demand are like a teeter-totter going up and down, central bankers have the job of trying to balance the see-saw right in the middle. Interest rates are one of the tools they have at their disposal and for the past decade or so, they’ve managed to keep things in balance.

But we’re starting to see some global challenges that may be tipping the balance.

The flip side of low interest rates for many economies is a lower currency. The Canadian dollar is a good example…it’s dropped about ten per cent against the US dollar in a matter of weeks. Higher interest rates would reverse that trend somewhat as investors around the world move money in search of the better returns brought by higher rates. And that adds demand for a currency, raising its value.

More on this tomorrow.

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