Interest rate increases are necessary but painful, writes Peter Watson.
There is a whole lot of financial pain being inflicted on Canadians.
This comes in the form of the Bank of Canada raising interest rates again by one half of one per cent. This is the seventh time in 2022 the central bank has raised interest rates.
In my opinion the BOC is not to blame. An expression I have used in past articles is this is an example of the BOC exerting “tough love.”
Most Canadians understand that inflation has been far above the target rate of two per cent.
Many Canadians are experiencing financial suffocation with rising prices.
With respect to the Canadian economy or how we all manage our household finances, inflation is a real and significant problem. Our free enterprise system is built on the foundation of several things.
A good stable economy is key. Without it, Canadians cannot build and maintain a healthy prosperous financially secure life.
The cold reality is some Canadians are less equipped to be able to handle inflation or to cope with increasing interest rates that have been inflicted by our central bank.
Higher interest rates to control inflation is a necessary evil. Yes, it inflicts pain on many but the pain that would be inflicted would be higher over time without the decisive action of increasing interest rates.
There are signs that previous interest rate hikes have started to control inflation. That is a positive sign because the more quickly inflation is under control the more quickly interest rates can start to be reduced.
This will be good news for the Canadian economy and very welcome news for the many that are coping under the strains of high interest rates are on their debt.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
