As expected the Bank of Canada announced that it is maintaining its target for the overnight rate at 1 per cent today. This means that variable mortgage rates will remain level. Below is a look at some of the factors that are driving this announcement: the good and the bad.
- The recovery in Canada is proceeding as anticipated
- Domestic demand in the United States is increasing and will continue to do so due to recently announced monetary and fiscal stimulus
- European growth has been slightly stronger than anticipated
- The contribution of government spending in Canada is expected to wind down
- Consumer debt levels are expected to slightly improve given yesterday’s announcement by the Finance Minister
- Existing consumer debt levels coupled with the new mortgage regulations means that we could see a slow down to the pace of consumption growth and residential investment
- Both the strength in the Canadian dollar and Canada’s poor relative productivity performance are dampening the recovery in net exports
- The sovereign debt issue in Europe is rife and a significant source of uncertainty to the global outlook
- The US job numbers were not as good as expected and indicate that there’s still a long way to go before we see a thriving economy once again in the south
In summary, the Bank projects the economy will grow by 2.4 per cent in 2011 and 2.8 per cent in 2012, returning to full capacity by the end of 2012. We’ll get a bit more insight into the current state of the economy when the next Monetary Policy Report is published tomorrow, January 19th, 2011. The next Bank of Canada Rate announcement is on March 1, 2011.