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Prime rate has been entrenched at 3% for four years now, the longest stretch of flat rates since the 1950s. And the BoC gave no hint of change at today’s rate meeting.

Here’s the gist of its statement from this morning:

  • The BoC attributed the recent inflation upturn to “temporary” factors
  • “…The housing market has been stronger than anticipated,” it says (no doubt mortgage policy-makers are watching home prices like hawks)
  • The bank believes our economy could run below capacity for “the next two years”

But it’s usually the last paragraph that matters most in BoC statements, and the key line from that paragraph was:

“The Bank remains neutral with respect to the next change to the policy rate…”

That suggests we’ll at least be into next year before prime rate changes.

Despite the BoC’s God-like influence on the markets, the best indicators of potential rate changes remain money market and bond yields. The two-year government yield, for example, is especially sensitive to perceived changes in the BoC’s overnight rate. (Just be wary when interpreting short-term moves in yields, which are highly random. Long-run trends and your own personal circumstances make for the best long-term strategy considerations.)

The next BoC meeting is October 22. This one will be extra special as Governor Stephen Poloz is expected to comment on the new “normal” for interest rates.

Rob McLister, CMT

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