Bank of Canada Leaves Overnight Rate Unchanged

Bank of Canada Announcement - Rates Remain Unchanged
Written by Newsroom
Tuesday, 01 March 2011 10:05
Would they or wouldn’t they? This was the question on many Canadian lips for the last couple of weeks. There has been much talk that a rise in interest rates in inevitable. That may be so—but not today.
The Bank of Canada “is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent. “
Despite all the buzz and speculation about interest rates, with reasonable Canadian
economic growth, political turmoil in Libya and the price of oil, and a myriad of other factors, the Bank of Canada has held its status quo for interest rates, again.
This latest announcement marks the fourth consecutive time that Mark Carney has left rates unchanged; he is not without his reasons though.
The Global economy is moving along as expected, although “risks remain elevated’; perhaps most the mot prominent flag in this regard is the storm that is churning in Libya- and the possible surge in oil prices; This gives Canadian investors and consumers alike an unwelcome taste of déjà-vu- from the pre-recession days—when oil prices were widely forecast to reach between $200-$300/ barrel.
That said, the Canadian economy is modestly beating growth forecasts; the US economy
continues to chug along, put in sustained motion by government stimulus; similarly, businesses are continuing to spend, and are starting to contribute to overall economic growth, through investment partially funded by government stimulus.
In terms of inflation, Canadian inflation levels are moving reasonably, and are keeping in line with what is expected- “Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy. “ Global inflation continues to grow—but at a manageable pace.
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Bank of Canada Announcement - Rates Remain Unchanged
Written by Newsroom
Tuesday, 01 March 2011 10:05
“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.“
The changes to mortgage lending introduced by Jim Flaherty earlier this winter are set to take affect this month; there has been widespread concern that the combination of tighter lending restrictions, shorter amortizations and higher rates, might cause stress to an already heavily debt burdened typical Canadian consumer. At least for now, they will get a reprieve from higher rates.
What will Carney’s next move be, and what will the implications be on Canadian borrowers and the economy alike? Let the speculation begin for the next rate announcement- which comes down on April 12.
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