Bank of Canada Bank Rate held steady in April

Bank rate held steady in April
Forecast for economic growth revised

The Bank of Canada held its benchmark overnight lending rate steady at 4.25 per cent on April 24th . The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 4.5 per cent.

The Bank's announcement repeated the message it has been giving since it put interests rates on hold in the middle of last year, and signaled that it views current interest rates as “just right”.

“The current level of the target for the overnight rate is judged, at this time, to be consistent with achieving the inflation target over the medium term,” the Bank of Canada said in its April 2007 statement.

In a departure from previous messages, the statement also revealed that the Bank has slightly downgraded its forecast for economic growth, and upgraded its concerns about inflation.

“The upside risk to the Bank's inflation projection is that the recent strength of inflation could be more persistent than projected,” stated the Bank of Canada. “The downside risk continues to come from the possibility of a more pronounced slowdown in the U.S. economy. The Bank continues to judge that the risks to its inflation projection are roughly balanced, although there is now a slight tilt to the upside.”

“The decision by the Bank of Canada to hold interest rates steady was widely expected,” said CREA Chief Economist Gregory Klump. “The Bank's warning about the upside risk to inflation at the same time it lowered its economic growth forecast all but rules out an interest rate cut this year.”

“The slowdown in U.S. economic growth is now expected to be more prolonged than the Bank originally expected, which may result in slower Canadian exports and economic growth,” noted Klump. “Meanwhile, consumer spending in Canada will continue to power Canadian economic growth.“

When the Bank decided to keep interest rates steady on April 24th , the advertised conventional five-year conventional mortgage rate stood at 6.64 per cent – down 0.31 per cent from the peak reached last year. Competition among mortgage lenders remains stiff, which continues to help many borrowers negotiate discounts of one per cent or more off advertised rates.

“An expected increase in new listings and further home price increases are forecast to prompt some homebuyers to shop longer before making a purchase decision, and gradually cool housing demand this year and next,” Klump added. (CREA 24/04/2007)

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