The Bank of Canada met this morning and as many experts predicted, including our Mortgage Rate Outlook Panel members, the key overnight lending rate will stay where it is at 1%. This means that the Prime Rate is also unchanged at 3%, and that variable mortgage rate holders don’t have to worry about payment increases just yet.
This is the sixth consecutive interest rate meeting resulting in no change. The last time the Bank of Canada increased rates was in September 2010 by 25 basis points (there are 100 basis points in a percentage).
Here’s a highlight of the reasons behind maintaining current interest rate levels:
- US growth has been modest (as our largest trading partner this will directly hamper our rate of economic growth)
- Although inflation is sitting above 3%, this isn’t being viewed as a concern. The high energy prices are short term and the CPI (Consumer Price Index) is expected to return to the target level of 2% in mid 2012.
- The strong Canadian dollar will also help to keep inflation in check (this decreases net exports and drops import prices)
- On the global front, growth in Europe is picking up but risks are still prevalent. Specifically the BoC says: “The disasters that struck Japan in March are severely affecting its economic activity and causing temporary supply chain disruptions in advanced economies.”
- Back on home soil, the Canadian economy grew at an annual rate of 3.9 per cent in the first quarter, which is pretty good and on par for what they expected in the April Monetary Policy Report. Although this level of growth is not expected to continue throughout the year.
The next rate announcement is scheduled for July 19th. At this stage the jury is still out on whether or not the Bank of Canada will increase rates in July or hold off until September. Our Mortgage Rate Outlook Panel is bound to have some thoughts on that over the coming months, so stay tuned.