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In Case You Missed it, Bank of Canada Stands Pat



Bank of Canada Stands Pat on Rates (again):

As expected, the Bank of Canada left its key overnight rate at 1% earlier this month, where it has been since September of 2010.  As banks and other lenders rely on this rate to set their Prime lending rates, those with variable rate mortgages can rest easy a while longer, perhaps a lot longer, with no prospect of any imminent rate hike.

In its comments the Bank balanced concerns about consumer debt levels, a hot housing market and improving UK and US economies with slow Canadian GDP, lack of sustained job growth and a faltering European recovery.  Although the Bank removed much of the dovish sentiment from its comments, Bank Governor Stephen Poloz wasn't hawkish either, prompting many to describe the current stance as neutral.  However, neutral would imply the equal possibility of a rate cut which few actually believe. 

Rate Hike Forecast: 

Although rate cuts are not entirely off the table the next move in interest rates is likely to be up, but not for a while.  The general consensus among analysts and economists is that that the first rate hike won’t occur until the U.S Federal Reserve begins hiking it rates, which is expected to be some time in mid-2015.  Mr. Poloz has said, however, that the Bank of Canada will not simply follow the Fed:  “The main thing people should understand is that our policy is quite capable of being fully independent, as it has been these past few years.”  That being said, it seems unlikey that the Bank of Canada will beat the Fed out of the gate.

For further commentary please see the following links:

Bank of Canada Won't Follow Fed's Lead on Interest Rates - Globe & Mail

Poloz Turns Ultra Neutral on Interesty Rates - Financial Post

Key Take Away from the BoC's Statement - Business in Canada

Bank of Canada Rate Decision - Financial Post

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John Freeland Smith

 

         

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