Well, it’s official: the Bank of Canada (BoC) is leaving its overnight interest rate at 1.00% for another six weeks – a position it has held since September 2010. Since any change to the overnight rate would directly impact Prime rate, the announcement that it will remain low is not only good news for variable rate mortgage holders, it’s also good news for every Canadian who has any loan attached to Prime, as well as for those who want to borrow money in the near future.
The not so good news is how what’s happening in the world around us has affected parts of the Canadian economy:
“Against a background of ongoing geopolitical uncertainties and lower confidence, energy prices have declined and there has been a significant correction in global financial markets, resulting in lower government bond yields.”
In other words: oil prices are down, financial markets took a serious dive and, therefore, some Canadians may feel less than confident in their spending and investment decisions right now; this is where the BoC’s monetary policy comes into play. The objective of monetary policy is to preserve the value of money by keeping inflation low and stable. Inflation in Canada is close to the BoC’s 2.00% target, but it’s still considered unstable because of the fluctuation in energy prices right now.
The BoC carries out its monetary policy by influencing short-term interest rates (raising or lowering the overnight rate). After the last interest rate announcement in September, most economists predicted the BoC would increase its overnight rate by Q3 2015. After today’s announcement, that likely still rings true for most. However, the BoC has decided to remove any and all “forward information” from the end of its announcements, so we’ve only been left with this:
“Overall, the balance of risks falls within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1.00%.”
The final interest rate announcement for the year is scheduled for December 3, 2014.