Bank of Canada Keeps Rates the Same
Interest Rates
The Bank of Canada announced this morning that it would maintain it’s target for the overnight rate at 1/4 per cent.
The retail “prime” rate offered by the country’s banks is based on this figure and as such remains unchanged at 2.25%.
While the change in the rate is no surprise, some economists and currency traders were expecting a more “hawkish” commentary due to the recent positive economic data.
With respect to inflation: “Core inflation in recent months has ben slightly higher than … projected, although total CPI inflation remains close to projections.”
However, with respect to the global recovery which the bank described as “slightly more positive” it does stress that “significant fragilities remain.”
The bank expects Canada’s inflation target of 2.0% to be hit by the 2nd half of 2011. As such the bank has reiterated it’s position that the “rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.” and that the “overall risks to its inflation projection are tilted slightly to the downside.”
This is good news for adjustable or variable interest rate mortgage holders as it means that savings will continue to accumulate well into 2010 and probably into 2011 as well. Remember that the primary reason for raising interest rates is to slow down inflation and any inflation below the 2.0% target (which they don’t expect to hit until the end of 2011) is considered too low. As such, interest rates increase primarily when there is fear that inflation will surpass the intended target.
