Manufacturers, exporters lament interest rate hike

Much to the chagrin of members of the manufacturing community, the Bank of Canada has raised its target for the overnight rate by one-quarter of a percentage to 4.5 per cent.

The Bank cited better than expected economic growth and inflation for its decision, and noted that the benchmark interest rate may see a “modest further increase” to bring inflation back on target.

Local exporters noted that the move would bring the Canadian dollar closer to parity with the U.S.

“If they jack them up and say there’s a risk they’re going even higher, it’s going to drive the Canadian dollar to be even stronger,” said Steve Lancaster, CFO of Toronto-based aerosal can and plastic tube manufacturer CCL Industries Inc., in an interview with Bloomberg News. “That’s going to be enough to push a lot of people over the edge.”

Several Canadian manufacturers have argued that the rising dollar has limited their competitiveness in the global market, and some companies have blamed the Loonie for layoffs and other cost-cutting measures.

In a June report, CIBC World Markets chief economist Jeff Rubin predicted that the dollar would reach parity by the end of the year for the first time since 1976.

In a separate report on July 5, CIBC World Markets’ Benjamin Tal reported that the three-month moving-average number of personal bankruptcies rose by 0.8 per cent (year-over-year) in May 2007, the first increase since 2005.

Tal also noted that bankruptcies are rising in Ontario and Quebec, and the number of proposals for personal bankruptcies is rising 11.9 per cent nationally.

“We expect the sharpest increase to be in Ontario and Quebec due to the recent rise in the value of the dollar and its negative impact on the manufacturing sectors in these two provinces,” said Tal.