Surprising no one, the Bank of Canada chose not to raise interest rates yesterday, maintaining the benchmark overnight rate at 1%, which makes the banks’ prime rate 3%.
From the BoC press release:
The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.
Aptly summarized by Canada Mortgage Trends:
- Global economic “risks have increased”
- “…pressures affecting prices remain largely unchanged”
- Today’s decision “leaves considerable monetary stimulus in place”
- “In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust.”
- “…net exports were weaker than projected and continued to exert a significant drag on growth”
This is good news for investors and people considering a new home purchase. The fundamentals underlying the recovery in Canada are very strong, and global forces causing the recovery to stretch out a bit will help keep interest rates down longer, with less pressure on inflation.