Posted by: Vince Gaetano
On Wednesday, the Bank of Canada announced that they would not be making any changes to their benchmark interest rate, the overnight lending rate. The Overnight Lending rate has remained unchanged for four years.
Inflation and household debt remain the key points behind the central bank’s ‘neutral’ stance on interest rates.
The consensus from analysts is the expectation that the Bank of Canada will raise its overnight lending rate in mid-to-late 2015, mirroring an expected rate increase from Federal Reserve in the United States. Observers might note that rate increases were expected from economists and analysts both in 2013 and 2014 without any changes materializing.
The overnight lending rate is the interest rate that banks in Canada will use in order to establish their ‘prime rate'; a term Canadians with variable rate mortgages should be very familiar with. A decrease or increase in the prime rate leads to a change on how much consumers pay on their mortgage or on credit cards with variable rates.
The Bank of Canada was not completely neutral – the central bank reported that the Canadian economy showed an annualized 3.1 percent growth, strengthened primarily by exports which powered ahead by 4.2% for the quarter. Although the economic growth is welcomed, the Bank reiterated their desire for sustained growth.