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”

Core-Inflation-Projection

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

  1. I find the idea that CPI will increase in the middle of a housing downturn quite unlikely…
    Expect rates to hold low for a long time.

  2. “But if the next move is indeed up, it won’t be happening this year…”
    nor next year
    nor the year after that.
    The so called experts have be warning us for over a year that rates are going up soon only to change their minds and forecasts. Once again they do the flip flop.
    I am taking advantage of my low variable rate for the full 5 years. The world economy is in the tank and until that changes, interest rates are not going anywhere.

  3. By boldly predicting no rate hikes through 2015, how are you any better than the experts you are criticizing?

  4. Housing downturn will hurt our economy (recession?), cause our dollar to drop and will increase import costs/inflation which is why we may have to increase rates when it may not be an ideal time to.(housing is a very small sliver of the CPI calculation)

  5. I don’t claim to be an expert. I just follow the world economic fundamentals and it doesn’t look pretty. In the past policy makers have set targets for prime rates at higher levels. That was then, this is now. The new normal is trending toward lower rates as a benchmark. Nothing in the economy justifies moving the rates from where they are. Debt levels at all levels of governments and personal non-mortgage debt are higher than ever. What’s so bad about low mortgage rates anyway?

  6. Where we are now has nothing to do with where rates will be two years, or even one year, from now. If the experts can’t make the right calls, then I wouldn’t put too much stock in the Kevins, Joe Blows and Jane Does of the world. No offense Kevin.

  7. I will rely on my trusty dart board for any financial prognostications as it has been more accurate than anything else in the financial world lately.

  8. i’m sticking with my low variable too….u just have to keep watching headlines and listening to the news and checking websites like this one….and watching Greece, spain etc

  9. No kidding! Who accurately predicted just 10 years ago that 5yr fixed mortgages would one day be below 3%?
    I would have offered 10,000/1 odds and bet the bank’s vault that they would be wrong.

  10. On the radio this morning they were reporting that the B of C is worried about the latest inflation numbers being so low. That said, that takes the steam out of any foreseeable rate hikes. One financial analyst even ventured to say 2015 as the earliest. Then again, what does he know!! I will just enjoy the ride while it lasts!

  11. Hey Rob,
    How are you?
    Just for laughs rds of wisdom from Rob Carrick he Globe and Mail back in 2007 to which was updated in 2012…back in the days when he said to lock in at at around 5.75% for five years!
    You now have roughly six to nine months to get a personal plan together for dealing with higher interest rates.
    After that, the ride begins. Where it ends depends on how smartly the economy and inflation snap back, but we could be looking at a prime rate of more than double the current 2.25 per cent by the end of 2011. Let’s look at four ways you can prepare.
    Cheers,
    Brian

  12. Just for laughs, words of wisdom from Brian Poncelet back in Jan-08.
    “Brian Poncelet, CFP said… The big deal will be Oil prices, Nat. gas prices. don’t worry about rates going through the roof worry about heat going through the roof!” Posted on Jan-2, 2008 at 7:09am.
    WTI Crude Futures)
    Jan-08:$98 >> Jan-09:$43 >> Jan-13 $93
    ANG Reference Price) mthly weighted average field price of all Alberta gas sales:
    Jan-08:$6.19 >> Jan09:$5.77 >> Jan-13:$2.76

  13. The world lunges from one financial crisis to the next because you bankers don’t understand that the money in the vault is not yours to bet.

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