It was no surprise on Wednesday morning when the Bank of Canada announced that they would maintain their Key Overnight Lending Rate at 1.0 percent. The announcement means that major banks will keep their Prime Rate consistent at 3.0 percent, which means variable mortgage rates will also stay where they are
The Bank of Canada highlighted a number of reasons for keeping interest rates low, including:
- The European sovereign debt crisis is getting worse
- Global growth has slowed
- Financial market volatility has increased sharply
- The US is not recovering fast enough from the recession
High levels of household debt and unemployment will force US consumers to cut back on spending, further halting growth in the world’s largest economy.
On the home front, the BoC painted a bleak picture: Canadian economic growth stalled in the second quarter; lower wealth and incomes will likely moderate the pace of investment and consumption growth; and, the Canadian dollar continues to be a burden on Net Exports.
Plus, we should expect the economic situation to worsen in the event that global financial conditions continue to deteriorate.
Therefore, there is still a need for monetary policy stimulus (aka super low interest rates) to make it easier to borrow and spend money so our economy can continue to grow.
The next BoC meeting will take place on Oct 25th, followed by the release of the updated Montary Policy Report on Oct 26th.