Bank of Canada Interest Rate Announcement: December 3, 2014

Alyssa Furtado
by Alyssa Furtado December 3, 2014 / No Comments

This morning, Governor Stephen Poloz announced that the Bank of Canada (BoC) would leave its overnight lending rate at 1.00% for another seven (7) weeks. Since any change to the overnight rate would directly result in a fluctuation of Prime rate, this is good news for variable rate mortgage holders and anyone who carries a loan attached to Prime.

Before each of the BoC’s interest rate announcements, Bloomberg polls 20-30 economists to see what they think the announcement will include. This time, Bloomberg polled 22 economists, all of whom believed the overnight rate would remain unchanged – and they were correct. But many also made it clear they would be paying attention to how the BoC characterized recent improvements in the economy. Here’s what Poloz included in today’s press release:

“Canada’s economy is showing signs of a broadening recovery. Stronger exports are beginning to be reflected in increased business investment and employment. This suggests that the hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun. However, the lower profile for oil and other commodity prices will weigh on the Canadian economy.”

One thing Poloz failed to mention was the fact that our dollar has depreciated by almost 10% since he took office in June 2013; economists believe this is in part because he dropped former governor Mark Carney’s language about the potential need for tighter policy. Unfortunately, since our economy follows trends seen first in the U.S., Poloz can’t raise rates or attempt to boost our dollar, before the Federal Reserve Bank does – at least not without the risk of hurting our exports.

The Fed is forecasted to make a 0.25% increase sometime in the next 12 months. The same Bloomberg economist survey says we should expect to see our overnight rate follow suit.

The next interest rate announcement is scheduled for January 21, 2015.

Source: Bank of Canada Press Release – December 3, 2014