There was no change to rates at today’s Bank of Canada meeting.
Pretty much every economist in Canada expected them to leave the benchmark interest rate at 0.25%, and they did.
In its statement today, the BoC said:
- “Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010.” (That suggests at least 11 more months of prime rate at 2.25%.)
- “Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth.”
- “However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.” (CDN$ chart)
- “The Bank projects that the economy will contract by 2.3% in 2009 and then grow by 3.0% in 2010 and 3.5% in 2011.” (These 2009 and 2010 projections are notably better than the 3.0% 2009 decline and 2.5% 2010 growth the BoC projected in April.)
- “The Bank still expects core inflation to diminish in the second half of this year before gradually returning to 2 per cent in the second quarter of 2011.”
The BoC issues its Monetary Policy Report on Thursday, which will contain more detailed information on Canada’s economic health.
The Bank’s next interest rate announcement is September 10.
Just wondering, how much will inflation have to go up before the BC increases rates?
@SamD – The Bank of Canada tries to keep inflation at 2 percent, which is midway between the 1 to 3 percent inflation control target range. This is measured in terms of the Consumer Price Index (CPI), but operationally the bank uses core inflation, which is less volatile.
So short story is if the Bank projects that core inflation will be higher than 3 percent for a significant period of time, they will raise interest rates.
Al R
Todays economies operate at the speed of light. I think the rapidity of the recovery will suprise a lot of people.
@ Kevin – depends on what measure you’re using. The markets may jump back fairly quickly, but employment is likely to take a long time to ramp back up. The last few recessions have featured jobless recoveries, and if people don’t have jobs, they can’t buy things.
There has been a lot of rosy news this week, but things are still a very long ways off from where they were at the start of 2008.
Al R