Real Estate News

Bank of Canada, Overnight Rate Target Announcement

by vahabj

Date: January 18, 2011

Bank of Canada, Overnight Rate Target Announcement

Source: Bank of Canada

Link to Release: http://www.bankofcanada.ca/en/fixed-dates/2011/rate_180111.html

Summary: At its January 2011 meeting, the Bank of Canada announced that it is maintaining its target for the overnight rate at one per cent, citing “elevated risks” to an economy that is growing slightly faster than predicted last October. The Bank gave no indication of when rate hikes might resume, instead noting that “any further reduction in monetary policy stimulus [i.e. interest rate hikes] would need to be carefully considered.”

Analysis: In its Monetary Policy Report (MPR) that followed the Bank’s January interest rate announcement, the Bank unveiled a slightly modified economic outlook, with the Canadian economy growing slightly faster 2011 than was previously forecast. While growth is expected to be more brisk in the coming year, the Bank also acknowledged that the gap between current economic output and potential output in Canada is wider than estimated in their October (MPR). This prompted the Bank to make a slight downward revision in their outlook for inflation. Against this backdrop, the consensus view of credit market participants is that we will see a resumption of interest rate hikes in the spring or summer to ensure that consumer spending does not grow so quickly as to push the growth rate of consumer prices beyond the Bank of Canada’s long-term target of two per cent. It is important to note that there are diverging views as to the timing of future interest rate hikes. Some commentators have suggested that hikes will not resume until the winter of 2011, whereas others were calling for a hike in January.

Source: Toronto Real Estate Board