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Bank of Canada Raises Interest Rates

The Bank of Canada raised its key overnight rate by 0.25% this morning, the third such increase since June of this year.  Bank Governor, Mark Carney, acknowledged that, even though this is the third straight rate hike in a row, the rate is still quite low. Mr. Carney stated that the Bank "expects the economic recovery in Canada to be slightly more gradual than it had projected [in July] largely reflecting a weaker profile for U.S. activity" but expects consumption growth "to remain solid and business investment to rise strongly". Whether or not the Bank will leave things be for a while is not certain.  Mr. Carney was not as negative as many expected but nonetheless left considerable room for future doom and gloom to delay any further rate hikes, stating "any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook."

As always, we can expect lenders to raise their Prime Rates by a quarter point as well, putting the current Prime Rate at 3.0%.  Although the 3 and 5 year bond yields are up about 10 cents today, bond yields overall remain quite low.  However, any continued upward movement in the bonds will eventually put pressure on lenders to raise fixed rates.

The following are links to a couple of articles with slightly different takes on today's announcement.

Why Mark Carney may not be done hiking interest rates - Michael Babad, The Globe and Mail

Bank of Canada rate to hold at 1% well into 2011: analyst - Jameson Berkow, The National Post

Best regards and thanks

John Freeland Smith, LL.B., AMP | Principal Broker
Broker Licence #: M08000041
CENTUM Freeland Mortgage Group Inc.
Brokerage Licence #: 11947
1017 Kingston Road, Toronto, ON M4E 1T3
Direct Line: 647-435-5398 | Fax: 1-866-588-9133

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