By Jemima Codrington
In a move anticipated by most analysts, The Bank of Canada announced today that the overnight rate will remain at 1 per cent target, suggesting it – along with variable rates -- won’t rise anytime soon.
The Bank cited “weaker business investment and exports” as a one reason the rate remained the same, along with a pullback in household spending, the European recession, slow but gradual recovery in the U.S and muted inflation.
“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent,” the bank said in a statement. “While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the two per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggests that the timing of any such withdrawal is less imminent than previously anticipated.”
Governor Mark Carney’s commentary hinted that no rate hike is in the cards in the near future, but according to Jimmy Jean, economic strategist at Desjardins, his painting of lower interest rates as desirable came as a shock.
“It’s a surprise,” he said, “It has more dovish content than what we were anticipating. The forecast adjustments were pretty much in line with what we were expecting. The language is really where the surprise comes from. We still don’t think we’re likely to see any move (on interest rates) in 2013.”
The announcement likely doesn’t come as a shock to brokers who have been monitoring the rate.
Short-term mortgage rates are unlikely to rise anytime soon, but overall rates are not expected to fall.
The economy slowed more than anticipated in the latter half of 2012, falling below the projections outlined by the Bank in the Monetary Policy Report (MPR) released in October, and is expected to continue at a “restrained” pace until the second half of 2014. The Bank revisited earlier projections for 2013, revising the 2.3 per cent growth estimate to 2 per cent.
carney is expected to address new numbers later today at a press conference alongside Bank of
Canada Senior Deputy Governor Tiff Macklem. The Bank will announce the overnight rate target again on March 6, and provide a fully updated outlook for the economy and inflation in the new MPR released April 17, 2013.