Bank of Canada Interest Rate Announcement: December 4, 2012

Alyssa Furtado
by Alyssa Furtado December 4, 2012 / No Comments

To no one’s surprise, Mark Carney announced this morning that the Bank of Canada will keep the overnight lending rate at 1.00 per cent.

The overnight rate is important to Canadian mortgage owners because it influences the interest rates at which banks can borrow, which then trickles down to the consumer level. Homeowners with variable mortgages attached to prime rate are most exposed to changes in the overnight rate.

The Bank of Canada looks at a number of factors when determining monetary policy, such as levels of household debt, foreign and domestic economic performance, and the national inflation rate.

The gross domestic product (GDP) shows the Canadian economy grew by only 0.6 per cent in the third quarter, well below the 1.00 that the central bank was expected. This result, combined with a flat September, make Ottawa’s fourth quarter GDP forecast of 2.5 per cent look near impossible.

Now, what is the likelihood of an interest rate hike? Don’t expect one anytime soon. Many economists were expecting déjà vu from today’s announcement, because when the economy shows only moderate growth, a potential interest rate hike becomes less likely.

The Bank of Canada maintained its somewhat hawkish tone in its outlook. “Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.”

Ottawa has left the overnight rate untouched for 27 consecutive months.