RSM230 Financial Markets: Interest Rate Hike Analysis and Implications

This report analyzes the article on the Bank of Canada's interest rate hike, focusing on its impact on the Canadian economy. The article highlights the rationale for a Central Bank, its role in setting interest rates and maintaining price stability. It explores the reasons for increasing or decreasing interest rates and their effects on the economy, noting that Canadian banks' debt levels contribute to inflation. The report relates these concepts to classroom discussions, emphasizing the importance of changing attitudes towards debt and the potential impact of trade deals. It also touches on the concern of how changing interest rates can affect Canadians carrying significant debt, particularly those invested in housing in major cities. The analysis is supported by presentation slides summarizing the key points and their relevance to the course.

Finance – Instructor Name
Full Name Student Number
The Lazy Economist: an Expert Explains the Bank of Canada’s Interest Rate Hike
https://www.queensjournal.ca/story/2018-10-29/columns/the-lazy-economist-an-expert-explains-
the-bank-of-canadas-interest-rate-hike/
By Rebecca Frost

The article depicts the rise in the interest rate in Canada to 1.75%. This scenario has not
only influenced the lives of the Canadian people but has deteriorated its national economy. This
economic issue emerged due to the fact that the Canadian banks have not been paying any
interest to its customers but only taking deposits. Banks have been acquiring only deposits and
collect interest from it by lending it to other customers. Through this practice, banks have been
gaining the money value, thus they still follow this approach. Allowing money in a mortgage,
loan, and credit form to their customers, the Canadian banks are able to create higher values.
The significance of this article is manifold. Firstly, it highlights the rationale of having a
Central Bank, which only sets interest rates but also intends to attain price stability. Secondly, it
portrays the reasons for which the Central Banks increases as well as decrease their interest rates
and analyzes their effects on the respective economies. In this context, the government of Canada
increases and decreases interest rates at any point in time in order to develop the Canadian
economy. Finally, the article identifies the sources based on which it can borrow and invest
money to develop the respective economies. Carrying a large number of debts by the Canadian
banks is one of the major sources for facing inflation.
The article discussed about various concepts that have been discussed in class. For
instance, it showcased the fact that the initiative of changing the mindset in terms of debts by the
Canadian people can favor the national economy of Canada by stabilizing the current situation.
A deal must be passed between Canada, the US, and Mexico in order to deal with this critical
issue. Moreover, the article highlighted the concern about how changing interest rates by the
Central Bank can impact the Canadian economy, given the situation that the people belonging to
this nation carries huge figures of debts. According to the article, these people carry huge
amounts of debts due to the reason that they invest more on the houses in big cities.

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