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Bank of Canada Interest Rate Announcement: September 4, 2013

As a surprise to no one, Stephen Poloz announced this morning that the Bank of Canada would leave its overnight lending rate at 1.00 per cent – where it has sat since September 2010.

The overnight lending rate is important to Canadian mortgage holders – specifically those with variable rate mortgages – because changes to this rate could affect some lenders’ Prime rates. For example, if the overnight lending rate was increased by 0.25 per cent, banks would likely raise their Prime rates by 0.25 per cent soon after, which would result in a rate change for variable rate mortgage holders.

Poloz, who began his term as Governor of the Bank of Canada on June 3rd of this year, has so far stayed the course set by his predecessor Mark Carney. In his first interest rate announcement in July, Poloz explained, “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.”

Those sentiments were repeated today. And while this morning’s announcement did not come with an updated Monetary Policy Report, we did hear this:

“Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.”

The next Bank of Canada interest rate announcement and Monetary Policy Report is scheduled for October 23, 2013. Analysts predict the overnight lending rate will remain unchanged until at least mid-2014, and a Bank of Canada interest rate hike will only occur if the economy is stronger and household incomes are higher.

Source: Bank of Canada Press Release – September 4, 2013

Also read: 

Overnight Lending Rate in Canada