Prime to Remain the Same...

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent.

This was on the back of the sluggish world economy with economic growth in Canada now less favourable than what was previously expected.  Added to this, he US economy is softer than what was expected.  The surprise has been a slight up-tick in economic growth in Europe and renewed momentum in China’s economy. The Bank of Canada projects the global economy to grow by 2.8 per cent in 2013 and accelerate to 3.4 per cent in 2014 and 3.6 per cent in 2015.

The uncertain global and domestic economic conditions have the Bank of Canada projecting GDP growth to increase from 1.6 per cent in 2013 to 2.3 per cent in 2014 and 2.6 per cent in 2015. The Bank expects that the economy will return gradually to full production capacity, around the end of 2015. Inflation in Canada has remained low in recent months and both total CPI and core inflation are expected to return more gradually to 2 per cent, around the end of 2015.

The tone of the Bank of Canada rate announcement seems to state, quite clearly, that they will not be tampering with the overnight lending rate in the near term.  It will be interesting to see, though, how this all plays out should the Federal Reserve in the US cut back on their bond purchasers in December (as is currently the talk).  The bond market has dropped today (on the news from the Bank of Canada) with the 5 year bond yield at 1.73% which could point to softer fixed rates.

The next scheduled date for announcing the overnight rate target is 4 December 2013.

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