Bank of Canada Announcement - January 18, 2017

Posted on 18 January, 2017

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 made its first announcement of 2017 today, opting to keep the policy interest rate at 0.5 percent. This comes as no surprise to top Canadian Economists, some of whom project that the next rate hike will take place in 2018. Benjamin Reitzes, Senior Economist with BMO Capital Markets, notes that “the outlook is evolving largely as expected and there’s little reason to rock the boat.”

None of the major Canadian lending institutions have announced changes to their current prime rates following the Bank’s announcement; RBC, Scotiabank, BMO and CIBC have chosen to maintain their respective rates at 2.7 percent, while TD Bank’s prime rate has been holding steady at 2.85 percent since November of 2016.

While the new Trump administration is expected to impact the Canadian economy, the Bank has decided to keep any forecasts out of its reports until more information is given. “Until we know specifically what might be presented, we can’t assess the magnitude” cites Stephen Poloz, Bank of Canada Governor.

Largely in line with last October’s Monetary Policy Report, the Bank anticipates GDP growth of 2.1 percent in both 2017 and 2018 – with the economy returning to full output by the middle of next year. By contrast, core inflation has been lower than expected since October, sitting below 2 percent due to declines in food prices. The Bank expects inflation to move closer to the 2 percent target in the months ahead, “as consumer energy prices rise and the impact of lower food prices dissipates."

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