Bank of Canada Leaves Interest Rate Unchanged

by Jordan Lavin September 9, 2015 / No Comments

This morning, the Bank of Canada (BoC) announced it would leave the overnight lending rate unchanged at 0.50%. With the economy holding the line between positive and negative growth, and any major government intervention on hold until after the federal election, the BoC decided to take a “wait and see” approach, and not make any changes for now.

At the last regularly scheduled interest rate announcement in July, the BoC cut interest rates by 25 basis points. It was the second cut this year, mirroring a change in January. July’s rate cut spurred a spike in traffic to as consumers looked for lower mortgage rates. As the summer went on, and the economy appeared to improve slightly, it became apparent we were unlikely to see another cut today.

The BoC’s announcement pointed to successes resulting from July’s rate reduction, saying, “The stimulative effects of previous monetary policy actions are working their way through the Canadian economy.” The announcement also admitted that outside influences, particularly from China and the United States, will continue to play a part in our economic recovery.

Eyes are now on the US Federal Reserve, which has the opportunity to raise interest rates in that country next week. If they do, it will be their first interest rate hike since 2008. Experts had been convinced a September rate increase was a sure thing, but they’re now saying it could be later this year before anything happens there. The BoC has said they won’t automatically follow an American lead, but a US rate hike would affect the Canadian economy. By holding steady, the BoC has left room to move in either direction, depending on the outcome of decisions made south of the border.

What does this mean for you? Generally, no news is good news. If you have a variable rate mortgage, it’s likely to remain unchanged for the time being. However there is still room for the banks to compete, as they’ve only passed on a portion of this year’s rate cuts to consumers. Even though the overnight lending rate has fallen 50 basis points since January – from 1.00% to 0.50% overall – the major banks have only reduced their prime lending rates by 30 basis points – from 3.00% to 2.70% overall. It will be interesting to see whether the banks remember that when rates eventually go up.

The next Bank of Canada rate announcement is scheduled for October 21st.

Source: Bank of Canada Press Release – September 9, 2015