Bank of Canada Announcement: No Change To Central Interest Rate

Breakdown of the recent Bank of Canada Announcement.

Can’t say we’re surprised: for the 29th announcement in a row, the Bank of Canada has maintained its trend-setting Overnight Lending Rate at one per cent.

The Bank rate and Deposit rates also remain unchanged, at 1.25 and .75 per cent respectively.

Inflation Remains Biggest Obstacle To Interest Rate Growth

Inflation has been the main caveat for economic growth and the Boc’s intentions to eventually hike central interest rates. It is expected to dawdle below the two per cent benchmark growth this year, with steep retailer competition as the biggest hurdle; efforts to lure customers with bargains trump any chance for prices to organically rise with demand.

However, the BoC sees improvement on the horizon – our currently low Loonie and rising energy prices will give inflation a much-needed boost, as retailers’ competitive stance eventually fades.

Good Times Ahead For the Global Economy

The BoC puts much stock in improving conditions in the U.S., especially as winter’s deep freeze retreats. “The economic recovery in the United States appears to be on track, despite soft readings in the last few months largely due to unusual weather. Indeed, private demand could turn out to be stronger than anticipated,” states the Bank’s release.

There is some tepid optimism for “modest” growth in Europe, though the Bank points to instability from the Russian-Ukraine conflict as an ongoing risk.

Forcasted global growth will reach 3.3 per cent this year, and up to 3.7 per cent in 2015 and 2016 – on par with predictions made in the January edition of their Monetary Policy Report. Comparatively Canada’s growth will be 2.5 per cent in 2014, and only two per cent over the following two years. This is a downgrade from the previous 2014 forecast of 2.5 per cent. The harsh polar vortex is to blame for sluggish winter consumer activity.

All Eyes on Exports and Global Investment

Stronger American and global economies are anticipated to breathe new life into Canada’s export industry – a factor the BoC hinges its relatively rosy outlook on, along with an increase in domestic business investment.

Improvements to both are sorely needed to take the pressure off consumer spending; while engaged consumers helped our nation weather post-recession conditions, spending has also contributed to what the Bank considers a top vulnerability – too much household debt.

The BoC’s recent Spring Business Outlook Survey found Canada is on trend for improvement; businesses are looking to hire and release money from their recession-era coffers, and are taking advantage of the cheap cost of borrowing.

Combined, these factors should place Canada on a better growth track over the coming year.

Stability in Store for the Housing Market

While the Bank remains concerned that “household imbalances remain elevated and would pose a significant risk should economic conditions deteriorate,” it calls for a generally soft landing for the housing market – good news for owners heeding doom and gloom calls for an impending market correction.


Related Topics

Economic News / Mortgage News / Mortgages

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