The Bank of Canada announced today, December 7, 2010, that it is maintaining its key interest rate, the target for the overnight rate, at 1%. This means that the big bank Prime Rates will remain at 3% and this is great news for variable rate mortgage holders as variable mortgage rates will also not change.
This announcement was widely expected as inflation, which is the Bank of Canada’s main concern, is under their 2% target and in line with their expectations. The Central Bank reported that the global economy is recovering as they expected, but some risks have increased. US consumer growth is recovering slowly, while Europe has seen a modest recovery, and the increasing sovereign debt risk in several countries poses a huge threat internationally.
At home, the Canadian economy is recovering moderately although Q2 2010 growth was weaker than expected, however, Q3 2010 household spending was higher, coupled with growth in business investment. Net exports were weaker than forecasted and are providing a drag on growth mainly due to the strong dollar.
The announcement ended with this: Any further reduction in monetary policy stimulus would need to be carefully considered. This statement seems to confirm what many economists have been saying recently, that with all the external problems in the US and Europe, the Bank of Canada would be hard-pressed to continue increasing interest rates. So they may have to pause for the next few months and wait until this summer before making any more changes.
Again this is great news for variable mortgage holders as this means, your monthly payments may not go up for another 5- 6 months. You can take a look at what our Mortgage Rate Outlook Panel is saying about the short term trend for mortgage rates as well.
The next Bank of Canada interest rate announcement is on January 18, 2011, with the Monetary Policy Report to be published on January 19, 2011.