Bank of Canada maintains interest rates
Reiterates commitment to hold until end of second quarter of 2010
The Bank of Canada held its benchmark overnight lending rate steady at 0.25
per cent at its setting on October 20th, 2009. The trend-setting Bank rate,
which is set 0.25 percentage points above the overnight lending rate,
remains at 0.5 per cent.
The Bank acknowledged that recent indicators point to the start of a global
recovery, and that economic and financial developments have turned more
favourable than it had previously expected. While recognizing that the
Canadian economy is rebounding, it expects the recovery to be weak by
The Bank downgraded its forecast for Canadian economic growth this year,
while keeping its forecast unchanged for 2010. It also lowered its forecast
for economic growth in 2011.
In its September announcement to hold interest rates steady, the Bank
forecast that inflation would return to its two per cent target in the
second quarter of 2011. The Bank has now moved that date out to the third
quarter of 2011.
The Bank's commitment to keep interest rates on hold until the second half
of next year is conditional on the outlook for inflation. Since inflation is
not expected to pick up sooner than it previously expected, the Bank
repeated its commitment to keep interest rates on hold. "Conditional on the
outlook for inflation, the target overnight rate can be expected to remain
at its current level until the end of the second quarter of 2010 in order to
achieve the inflation target."
The Bank pointed to the rapid rise in the Canadian dollar in recent weeks as
a risk to the Canadian economic recovery, saying "Heightened volatility and
persistent strength in the Canadian dollar are working to slow growth and
subdue inflation pressures." The Bank now expects that the domestic economy
will be a greater source for economic growth, at the expense of weaker net
The Bank expects the output gap to close in the third quarter of 2011, one
quarter later than it had projected in July when it said production would
reach capacity in mid-2011.
"The Bank threw cold water on recent speculation that it may raise interest
sooner rather than later," said CREA Chief Economist Gregory Klump. "By
highlighting the recent rapid rise in the Canadian dollar while
intentionally failing to mention the rebound in the Canadian housing market
as sources for concern, the Bank aimed to end recent speculation that it
will hike rates before its repeated pledge of not doing so until at least
As of October 20th, the advertised five-year conventional mortgage rate
stood at 5.84 per cent. This is down 1.36 per cent from one year earlier,
but stands 0.35 per cent above where it stood when the Bank made its
previous interest rate announcement on September 10th.
Improving credit market conditions have enabled lenders to reintroduce
discounts off posted mortgage interest rates. Discounts of up to a
percentage point can be negotiated, depending on lender-client relationship.
I hope this finds you Happy and Healthy!
All the Best!
A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate