Bank of Canada Maintains Low Interest Rates

Bank of Canada

It was no great surprise that the Bank of Canada maintained it’s key interest rate, the target target for the overnight rate, at 1%, in it’s latest rate decision. This result was widely expected by the markets and current speculation has the next interest rate increase not coming until the July 19, 2011 announcement.

The Central Bank reported that the global economic recovering is moving along at the same pace that was expected in the most recent monetary policy report. The US recovery is continuing and Europe still poses a large risk with the various country’s debt issues, ie. Ireland. Demand from emerging markets is driving up commodity prices and the civil unrest in the Middle East could further cause increase in oil prices, pushing up inflation.

In Canada, the economy is recovering slightly faster than was initially expected, which is great news, as demand is returning to it’s pre-crisis levels. Consumer consumption is strong although household spending seems to have come down, more inline with the growth in household incomes. This is welcome news as the Ministry of Finance and Bank of Canada Mark Carney have been sounding the alarm that Canadians are taking on too much personal debt. Perhaps the message is being heard and Canadians are moving back to increasing their savings rather than borrowing and spending.

With regards to inflation, around the world there is an increasing trend, while inflation at home is on par with the Bank’s expectations. As the Bank of Canada’s main mandate is to keep inflation around the 2% mark, this is a good sign that low interest rates will continue for the next few months, and the Bank isn’t in a rush to increase rates anytime soon. This was re-inforced by the last line in the announcement which read, “Any further reduction in monetary policy stimulus would need to be carefully considered.” This reduction in monetary policy means increasing interest rates from their current abnormally low levels. This is great news for variable mortgages as rates should hold steady until the summer.

Related Topics

Economic News / Mortgage News / Mortgages

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