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

  1. As housing activity slows, our mortgage rates should become more competitive.
    Our Bonds just keep dropping, so the banks have a VERY healthy differential:
    http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/
    Too bad I can’t lock in for 15 years at 2.86%:
    http://www.businessweek.com/news/2012-07-12/u-dot-s-dot-mortgage-rates-decline-with-30-year-at-a-record-low-3-dot-56-percent
    Maybe Canada should just axe the CMHC mortgage insurance and offer a decent rate themselves. Why pad the banks pockets while taking all the risk? (leaving tax payers on-the-line for any defaults)? Even if they just added 1% to the bond rate, they’d make more than they do with their current premiums. Though I suppose if there was no competition, they’d likely get greedy.

  2. give us a long term decent rate and then watch us spend money on other things to help boost the economy…how can we spend money on other things when all we do these days is spend money on paying for the house and living accommodations…

  3. I think there is some wisdom in changing the mortgage rules and not increasing interest rates.
    I’m sure there are wiser people who are more in-tune to these matters who might be able to speculate…

  4. You can’t move up rates with sub-2% inflation and a global slowdown. That’s not even an option on the table, despite what Carney wants us to believe.

  5. How does keeping rates forcibly below inflation help anyone, other than by rewarding debtors by inflating their debts away at the expense of savers?

  6. Low rates increase the supply of money which stimulates the economy, creates employment and brings inflation to its optimal level.

  7. Seniors have the lowest poverty rate (technically low-income cut off) of any group in the country.
    They’re the last group we should worry about right now.

  8. the so-called wiser people know exactly what “we” know and that is
    absolutely nothing, except when they talk nonsense they say it much more eloquently.
    And why should we expect rates to rise. What for? Is it because they’ve been low for so long? Is that the reason? If so, it’s a lame one.

  9. It’s equally true that rates *lower than inflation* rob everyone of their savings and cause prices to rise.
    You can’t get something for nothing.
    Savers are subsidizing spenders with the blessing of the BoC. Low interest rates punish the elderly who rely on fixed incomes and reward borrowers like homeowners.

  10. If you work and earn a salary, your on a “fixed” income except your income is not guaranteed and you could lose your job tomorrow.
    Where is it written that guaranteed savings rate should exceed inflation? Its benefits that are indexed to inflation, not savings!

  11. Inflation is 1.2% in May. The top rates for GIC`s are currently 2.15 to 2.67 (Term 1-5 yrs). What is your un-informed point again?

  12. More like stop using poor justification for bad arguments.
    Perhaps we should focus our attention on the groups that are in more dire straits (i.e. pretty much everyone else). Keeping rates unnecessarily high during periods of low inflation/economic difficulty to protect a segment of the retired population has some pretty negative implications for almost everybody else.

  13. Couldn’t agree more … just because the current generation of economists and forecasters grew up in a world where interest rates were between 4% and 10%, doesn’t mean we have to go back there anytime soon, or at all. We could have forces pushing rates in the opposite direction for a generation.

  14. Forgive me if I’m putting words in your mouth, but the idea that neither monetary policy nor regulation has a place in a modern economy is fairly extremist.
    The Bank of Canada has done a good job over the last several decades. I defer to their expertise on this. The last person to freak out on Carney over too much intervention was Jamie Dimon, and we all know how that went.

  15. I cannot believe what I am reading here! Someone thinks 1.2% inflation is going to impoverish somebody. I am afraid my guts are going to come up through my throat I’m laughing so hard! Thanks for that!!

  16. When the economy is weak, more people are helped by low rates than are “punished” by them. Grandma Millie’s fixed income getting squeezed cannot compare to entire factories closing.

  17. No. The next big crisis will be 1,000 factories closing in the rust belt and tens of thousands of families losing jobs to overseas employers.
    Our only hope is stimulating job growth and easy monetary policy is a proven way to do that.

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