Eight times per year, the Bank of Canada meets to determine what the base lending rate should be. Any change to this industry benchmark indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This information is also a good indicator of the current status of the Canadian economy.
The Bank of Canada seems to be getting into the holiday spirit as it opts to maintain the target for the overnight rate at 1 per cent. After two consecutive hikes in July and September, Canada’s central bank passed on the chance implement another rise in 2017. Officially known as the target for the overnight rate, the Bank’s rate has a large impact on the rates that lenders offer consumers on products such as mortgages, savings accounts and other types of consumer loans.
Though the bank noted that “higher interest rates will likely be required over time,” it also said it remained “cautious.” There was no indication of whether a further increase could come on January 17, 2018, the next scheduled rate update. Rather, the Bank said it would “be guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.”
There’s increasing evidence in the economic data that the benefits from government infrastructure investments have begun to work their way through the economy, the bank said. But on the other hand, the bank noted exports have slipped more than expected in recent months after a powerful start to the year, although it continues to predict trade growth to pick up due to rising foreign demand.
The bank’s statement said recent economic indicators have been in line with its October forecast, which projected a moderation following the country’s exceptional growth in the first half of 2017. The bank said inflation, a key factor in its rate decisions, has been slightly higher than anticipated and could stay that way in the short term because of temporary factors like stronger gasoline prices. Core inflation, which measures underlying inflation by omitting volatile items like gas, has continued to inch upwards.
From here, the bank must assess how to proceed with the interest rate while taking into consideration that Canadian households have amassed high levels of debt and the presence of still-hot housing markets in areas like Toronto and Vancouver.
The next rate announcement will take place on January 17, 2017.
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