Stephen Poloz has officially held his title as Governor of the Bank of Canada (BoC) for one year, and in that amount of time… not much has changed.
This morning, Poloz announced that the BoC would be leaving its overnight lending rate at 1.00 per cent – a position it’s held since September 2010, which has created a favourable borrowing environment for Canadians. The announcement is great news for variable rate mortgage holders, whose interest rates are attached to Prime, because changes to the overnight lending rate often result in changes to bank’s Prime rates.
What’s not great news, however, is how Canada’s economy continues to perform, which Poloz addressed briefly in today’s interest rate announcement.
“The Canadian economy grew at a modest rate in the first quarter, held back by severe weather and supply constraints. The ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand. There are continued signs of a soft landing in the housing market and a constructive evolution of household imbalances.”
When Poloz made his first interest rate announcement last summer, economists predicted the overnight lending rate would go up by mid-2014. However, because of Canada’s soft economy and continually weak rate of inflation (which has gone up recently, but mostly because of higher energy prices), the one thing that has changed since Poloz became governor is the date at which people believe the interest rate will eventually go up – today, we’re looking at mid-2015.
“The Bank judges that the balance of risks [associated with inflation readings, economic growth and household imbalances] remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1.00 per cent.”
The timing and direction of the next change to the interest rate will depend on how new information influences the balance of those risks.
The next interest rate announcement is scheduled for July 16, 2014.