Bank of Canada Interest Rate Decision


Bank of Canada Interest Rate Decision – September 5, 2012

No surprises from the Bank of Canada this morning. The Bank left its overnight rate at 1 per cent, where it has been since September 2010.  The statement released this morning in support of the interest rate decision noted that while global economic headwinds continue to restrain economic activity, the Canadian economy is growing roughly in line with its production potential.  On inflation, the Bank sees core inflation returning to its 2 per cent target over the next 12 months.

The Bank once again made clear that a gradual withdrawal of monetary stimulus may be become appropriate as excess supply in the Canadian economy is absorbed, but that such withdrawals would need to be weighed against domestic and global economic developments. Given ongoing uncertainty in the Euro-zone and the unresolved “fiscal cliff” in the United States, that caveat means that the Bank will likely hold off on raising rates until early 2013. We expect monetary tightening to proceed very cautiously, with perhaps a 25 to 50 basis points increase over 2013, bringing the Bank’s overnight rate to between 1.25 and 1.5 per cent by the end of next year.

Bank of Canada Interest Rate Announcement

News forwarded from the BCREA

The Bank of Canada announced today that it will hold its trend setting target overnight rate at 1.00 per cent. The Central Bank reported that the economic outlook for Canada has changed and it expects the economic recovery to be more gradual than projected earlier in the year. More modest growth reflects a more gradual global recovery and a more subdued profile for household spending.

Inflation has been below expectations and points to continuing excess supply and slowing in the growth of unit labour costs. The Central Bank now believes the gap between potential economic output and actual output won’t close until the end of 2012 rather than at the beginning of that year.

BCREA expects the Bank of Canada target overnight rate will remain unchanged until the end of the first quater of 2011. As a result, the prime rate will remain at 3.00 per cent until that time.