Monday, September 2, 2013

Prime minister's briefing note plays down low-interest-rate dangers

OTTAWA - The prime minister's advisers have dismissed a warning by a respected think tank that ultra-low interest rates need to start rising now to avoid damage to the Canadian economy.

In a paper for the C.D. Howe Institute, economist Paul Masson argued in May that the Bank of Canada should nudge rates higher to forestall real-estate bubbles, excessive household debt, pension-fund woes and other dangers.

But a May 31 briefing note requested by Stephen Harper's office on the controversial paper notes that Masson's arguments are "at odds" with the views of most economists.
And it says the central bank cannot act as if Canada is an island while the United States, Europe, Japan and England continue to hold rates down to help prime their anaemic economies.

The note, signed by the clerk of the Privy Council, advises Harper that the costs of raising Canada's interest rates would outweigh the benefits.
A heavily censored copy of the document was obtained by The Canadian Press under the Access to Information Act.

"The (C.D. Howe) report has captured some attention in the media, as the call for raising interest rates immediately stands at odds with the views of most economists and market players," says the five-page analysis.

"The costs of raising interest rates well ahead of other major economies would likely outweigh the benefits."
Harper, who has a master's degree in economics from the University of Calgary, is frequently briefed on think-tank publications focusing on the economy.

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