Bank of Canada may need to try QE
The head of Canadian fixed income for Blackrock, the world's largest asset manager, says Bank of Canada Governor Stephen Poloz may need to take a lesson in money printing.
"Corporations are screaming, 'I borrow out the curve, I don't borrow in the overnight market, and my cost of funds have gone up even though you're lowering rates,'" Aubrey Basdeo said. "So you have to go into unconventional monetary policy."
He cites commodity price declines and continued worries about China as potential triggers.
Where to for USD/CAD on QE
The major hurdle for the BOC and QE would be inflation. The falling loonie makes imported goods more expensive and that's pushes inflation higher. In addition, Canadian house prices continue to rise and PM Stephen Harper is (stupidly) promising more housing stimulus if he wins the October election.
I can't see the BOC further inflating the bubble unless Canadian housing crashes. Right now, there are no signs of it. Today's report from Teranet showed prices up 1.2% in July.
However, if house prices begin to crash, QE is definitely on the table and so is 1.45 (!) in USD/CAD.
