In his first monetary policy announcement as Governor of the Bank of Canada, Stephen Poloz revealed that the overnight lending rate will stay at 1.00 per cent. The overnight lending rate has not changed since September 2010. Poloz began his term as Governor on June 3, after leaving his position as President and Chief Executive Officer of Export Development Canada (EDC). Leaving the interest rate at 1.00 per cent was expected by most economists mainly because a low inflation rate and external economic factors make it a poor time to raise interest rates. Most economists and analysts are predicting the overnight rate to remain at 1.00 per cent until mid-2014, when there could finally be a Bank of Canada interest rate hike. In anticipation of the announcement, the Canadian dollar lowered 0.3 of a cent this morning after raising half a cent on Tuesday.
The overnight lending rate is important to Canadian homeowners, specifically those with variable mortgages, because changes in this rate often affect prime rates which variable mortgages are based on. Leaving the overnight rate at 1.00 per cent is great news for variable mortgage rate holders, who have now seen their rates remain steady for several years.
To determine monetary policy, the Bank of Canada examines a number of factors, such as: foreign and domestic economic performance, levels of household debt, and the national inflation rate. Currently, global economic growth remains modest and as a result the Bank of Canada has slightly downgraded their growth forecasts.
At the end of their press release, the Bank of Canada indicated that they will stick with their current monetary policy strategy, “as long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate.”
The next Bank of Canada interest rate announcement is scheduled for September 4, 2013.