The Bank of Canada decided to hold the target overnight rate steady at 3%. They cited:
“Three major developments are affecting the Canadian economy:
- the protracted weakness in the U.S. economy;
- ongoing turbulence in global financial markets;
- and sharp increases in many commodity prices.
Other interesting points include:
- gradual recovery in the U.S. economy are expected to generate above-potential growth starting early next year, bringing the economy back to full capacity around mid-2010.
- Canadian GDP is projected to grow by 1.0 per cent in 2008, 2.3 per cent in 2009, and 3.3 per cent in 2010.
The statement also highlighted that inflation is expected to reach 4% in the 1st quarter of 2009, however, they expect energy prices to stabilize and come back down to earth at 2% in the 2nd half of 2009.
If the Bank of Canada believes that inflation will reduce in the next year this reduces the necessity to increase interest rates to control inflation, which is welcome news for variable mortgage rates holders.