The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent, despite a surprise surge in the country’s economic strength. As a result, the prime rate will remain at 3.00%, much to the benefit of variable rate mortgage holders.
In a press release, Tuesday, the central bank gave the following reasons as to why they took another pass on a rate hike this time around:
- The global economic recovery is proceeding broadly in line with the Bank’s projection in its January Monetary Policy Report (MPR), although risks remain elevated. U.S. activity is solidifying and remains supported by stimulative fiscal and monetary policies.
- Ongoing economic challenges in European are limiting it’s recovery and are a significant source of uncertainty to the global outlook.
- Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.
- The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand. However, the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.
- While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank’s expectations. Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy.
The BoC noted that their decision to leave the overnight rate untouched, “ leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. “
After Monday’s release of better than expected GDP stats, there was some speculation that the central bank may need to raise the key lending rate a little sooner than the expected. Most experts did not expect a rate hike yesterday but there is now rumblings that it may come as soon as May 31st.
The central bank will meet again on April 12th, 2011.