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Bank of Canada Leaves Rates Untouched

Bank-of-Canada-Rates The Bank of Canada surprised few today by keeping its key lending rate at 1.00% for the fifth consecutive meeting.

With the prime rate holding at 3.00%, today’s news is yet another positive for variable-rate mortgage holders.

The BoC’s statement did have some mixed signals, but few analysts are decoding that to mean a May rate increase. Here is some of what the Bank had to say:

  • “[There is] an environment of material excess supply in Canada.”
  • “…the global economic recovery is becoming more firmly entrenched”
  • “In the United States, growth is solidifying, although consolidation of household and ultimately government balance sheets will limit the pace of the expansion.”
  • “…global financial conditions remain very stimulative and investors have become noticeably less risk averse.”
  • “The persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation”
  • “…recent economic activity in Canada has been stronger than the Bank had anticipated”
  • “Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011.”
  • “The Bank expects that the economy will return to capacity in the middle of 2012”
  • “…underlying inflation is subdued”
  • “Core inflation…is expected to rise gradually to 2 per cent by the middle of 2012”

Looking forward, a growing crowd foresees the bank resuming its rate increases this summer. Financial markets and major economists are largely forecasting 2011’s first rate hike to fall on July 19.

That said, those forecasts can easily change and some economists have already pushed back their expectations to as far as September or October.

The next Bank of Canada rate meeting is in 49 days, on May 31.

Steve Huebl & Rob McLister, CMT