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No Action from the BoC

BofCThere was no rate change to report from the Bank of Canada today, and nobody expected one.

Canada’s base interest rate remains at 1.00%. It has held that level for 952 days, an unprecedented stretch of flat monetary policy.

The Bank of Canada’s Mark Carney continues to maintain that “the next move (in rates) is likely to be up.” That so-called “tightening bias” has been in place for more than a year.

But if the next move is indeed up, it won’t be happening this year—that is, if you believe the forecasts of virtually every economist in Canada.

Here are some highlights from today’s announcement (our comments in italics):

  • “…the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required…”
  • “…the Bank continues to expect that the household debt-to-income ratio will stabilize near current levels.”
  • “…annual average (Canadian) growth is now projected to be 1.5 per cent in 2013”  [The BoC’s forecast was previously 2.0%. A 1.5% clip would be the slowest pace since the 2009 recession and suggest little threat of a rate hike this year.]
  • “The economy is then projected to grow by 2.8 per cent in 2014 and 2.7 per cent in 2015, reaching full capacity in mid-2015”
  • “…declining mortgage interest costs” have helped “restrain” CPI inflation
  • “Inflation is expected to remain subdued in coming quarters before gradually rising to 2 per cent by mid-2015”


Some key tidbits were also buried in today’s Monetary Policy Report. The BoC says:

  • “…A material degree of slack has re-emerged in the Canadian economy.” [That defers the next rate hike even further into the future. If variable rate discounts continue to improve, expect to see a pickup in VRM volume.]
  • “…If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy.”

In a press conference, Tiff Macklem, Senior Deputy Governor at the BoC, acknowledged that Canadian housing has slowed and called that “welcome” and “intended.”

The next BoC rate meeting is May 29.

Rob McLister, CMT