BoC Keeps Key Rate Unchanged

Bank-of-Canada-Benchmark-Rate The market widely predicted the Bank of Canada would not raise rates, and it was right. The BoC has left its key lending rate at 1.00%.

In turn, prime rate will remain at 3.00%, making today’s BoC meeting a non-event for mortgage holders in the short-term.

The BoC’s call comes amid languid recent growth and inflation numbers. Here’s a sampling of the Bank’s commentary from its official statement:

  • The BoC sees a “weaker-than-projected recovery in the United States.” (No revelations there.)
  • The potential exists for “a more protracted and difficult global recovery.”
  • “…domestic considerations…are expected to slow consumption and housing activity in Canada.”
  • “Inflation in Canada has been slightly below the Bank’s July projection.”
  • “The inflation outlook has been revised down and both total CPI and core inflation are now expected to converge to 2% by the end of 2012.” (As long as inflation doesn’t threaten to exceed the Bank’s 2% target for any extended period, that’s generally good news for mortgage rates.)
  • The 1% overnight target rate “leaves considerable monetary stimulus in place.”

The Bank also adjusted its growth forecasts as follows:

  • 2010 growth cut to 3.0% from 3.5%
  • 2011 growth cut to 2.3% from 2.9%
  • 2012 growth raised to 2.6% from 2.2%

Translation: Things are worse than the Bank expected.

A key takeaway here is that the BoC sees little inflation threat through 2012. That’s a long ways off. If true, this improves the odds that short-term and variable-rate mortgages will be the lowest-cost options for the next few years. (Remember, however, that the BoC can raise its forecasts just as easily as it lowers them.)

The next and final interest rate meeting of 2010 is on December 7.  As of today, most analysts expect no rate move at that meeting either.

  1. The funny thing in the statement is this:
    “With housing activity declining markedly as anticipated and household debt considerations becoming more important, the Bank expects household expenditures to decelerate to a pace closer to the rate …of income growth over the projection horizon. ”
    How do we have contradictory statements like this… when you hear news about the RE market and borrowing increasing all the time. Obviously the government is getting drastically different statistics than is the general public. On the one hand we’re told we are ever borrowing and on the hand, we stopped borrowing. Obviously the bank was going to keep rates low (given their data), but everything from the RE market and the media is saying that consumers are blowing their brains out.
    Somehow we aren’t all getting the same message. Way to go government.

  2. i’m surprised Carney didn’t help out his Bank CEO friends with another bonus in a rate hike.
    how did Carney even get this position, Goldman Sachs (where he was an executive) was found to be corrupt in the US, and help destroy the economy.

  3. Yeah! Are they trying to tell us that it’s hard to keep track of every move 30 million people make or some nonsense like that?! I mean the PM personally reads through every credit card transaction in the country at night to see what we’re up to so they could just ask him!

  4. Marc Carney got the job because he’s highly experienced and respected. He is Harvard and Oxford educated and has an impeccable understanding of financial markets. Just because a few idiots at Goldman made bad decisions in the US doesn’t tarnish Carney in any way.

  5. You are kidding right?
    147% indebted. Sound familiar?
    The difference is the rates of change.
    Is borrowing up or down, are people blowing RE bubble up or sucking it back?
    Government action is aimed at targeting consumer action. Big brother is watching exactly what you are doing to protect you from yourself.

  6. I agree with Rob & Melanie’s prediction re: VRM being the lowest cost borrowing option. Million dollar question – could anyone see the 5-year fixed rate dropping to the 3.00% range?

  7. I’m not so sure about Carney, and these “economic experts”; it seems like these experts have crashed our economy and destroyed any sane benefit people enjoy, ie. pension, benefits, vaction and so on.

  8. Carney and economists didn’t crash our economy. That’s just plain false. Canada’s economy got hit because of the global credit crisis. (Almost) everyone knows that.

  9. the global credit crisis was caused by deregulation of the financial markets, and folks like Carney who made tons of money from those folks who were losing there homes due to foreclosures.
    its quite clear that the big bank ceo’s orchestrated this mess, and walked away with handsome profits.
    we need more regulation to ensure this never happens again, but of course, with folks like Carney and Harper at the helm, this won’t happen.

  10. Give me a break. Carney had nothing at all to do with the events that precipitated the global credit crisis. He was not even in a position to! He worked at the Department of Finance and had no bearing on US/Global policies. Your post is utterly factless and completely unsupported.

  11. Carney was a top executive at Goldman Sachs – which was found to be corrupt, and was forced to pay a huge fine.
    Goldman Sachs made lots of money when regular working people lost there homes.
    As an executive, the only assumption that can be made is that Carney helped shape the corruption at Goldman, and now he is leading the Bank of Canada. Poor choice of the Neo-Conservative, Defecit Bloating – Harperites.

  12. I doubt it. The 5 year bond would have to fall to probably 1.60% or thereabouts. Our economic situation isn’t dire enough for that to happen IMO.

  13. I’m not sure if you are aware but Goldman Sach is an enormous company with hundreds of divisions. Yes, one part of it was engaged in wrongdoing but Goldman is still the most admired investment bank in the world. Carney had zero to do with US mortgage securitization and corruption. To say otherwise is libelous.

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