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Canada’s Key Interest Rate Stays Put

Bank-of-CanadaOnce again, Mark Carney and committee have left Canada’s core interest rate unchanged.

The overnight target rate has now been static for a record 678 days.

Our economy still isn’t firing on all cylinders, says the Bank of Canada. This suggests that mortgage holders can likely expect the 3.00% prime rate to remain as is for a number of months.

Here were some focal points from today’s BoC statement:

  • “Global financial conditions have…deteriorated since April…”
  • “Housing activity is expected to slow from record levels.”
  • “Canadian exports are projected to remain below their pre-recession peak until the beginning of 2014”
  • “The economy is expected to reach full capacity in the second half of 2013”
  • “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate”

That last quote is what the markets keyed in on. The BoC chose to retain this phrasing as a reminder that borrowing costs could jump if inflation threats emerge. That said, we’d likely have to see surprisingly strong economic performance for 3-4 months in a row before that happened.

“I think part of what’s behind the Bank’s language is that
they simply do not want the market pricing in rate cuts,” BMO’s Doug Porter told Reuters.

As for the bond market, it shrugged off the Bank’s statement today. The benchmark 5-year yield rose just two basis points following the announcement.

The next BoC rate meeting is September 5.

Rob McLister, CMT