Bank of Canada maintains overnight rate target at 0.25% and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.
They cited the following reasons for this interest rate decision:
- While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank’s projection in its October Monetary Policy Report (MPR).
- Expected demand is moving towards net aggregrate demand and away from net exports which in Q32009 resulted in weaker GDP growth
- Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.
- The drivers and profile of the Canadian economy remain the same as the Bank’s MPR report in October 2009.
- They expect the growth and recovery to continue along with inflation to return to the 2% target in Q2 2011
- If outlook remains within the desired range then the target overnight rate can be expected to remain at its current levels until Q2 2010, although the Bank “retains considerable flexibility” – this is great news for variable rate mortgage holders and shoppers looking for variable rates as this means they shouldn’t increase until next summer. Also, as members of Mortgage Rate Outlook Panel highlighted, that further discounts to variable rates are to be expected.
Main risks to inflation are:
- Stronger-than-projected global and domestic demand
- A more protracted global recovery
- Persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation