In January 2015, the Bank of Canada announced a surprising update that overnight lending rates would drop to 0.75%. In March they decided to maintain that rate. What does this mean for you and the Canadian Economy?
The lower overnight lending rate will benefit variable rate mortgage holders, home buyers and investors.
In mid-2014, Canada appeared to be gaining momentum for a positive post-recession rebound and a rate hike was anticipated. The significant drop in the price of oil has had a modest impact of the total demand of oil and more of a drastic effect on income. The consumer price index inflation rate fell and has been affected by the drop in oil prices, while core inflation remains close to 2%. Core inflation continues to be temporarily boosted by the pass-through effects of the lower Canadian dollar. Currently the United States remains the main source of momentum in the global economic growth, however many of the other central banks have taken action to ease monetary conditions. Crude oil prices are now close to the Bank’s monetary policy report assumptions; meaning financial conditions in Canada have eased materially since January.
The Bank predicts that most of the negative impact from lower oil prices will be seen in the first half of 2015. Risks pertaining to the inflation profile are now more balanced and financial stability risks are moving forward as expected. The next Bank of Canada meeting will be April 15th.
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