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Bank of Canada Keeps Key Interest Rate at 1%

July 16, 2014

Latest Monetary Policy Report from Bank of Canada Reflects Higher Energy Costs; Fundamentals Unchanged

In the face of recent concerns regarding the inflation rate in Canada, the Bank of Canada has decided to keep their key interest rate, the overnight lending rate, at 1%. The overnight lending rate has not moved since September 2010.

In announcements past, the Bank of Canada has expressed that a 2% core inflation rate would serve as a type of inflationary benchmark where the Federal body would consider increasing their overnight lending rate. Although Canada has recently seen an increase in inflationary factors, the Bank of Canada made it clear that they believe the recent surge is a temporary occurrence and that the recent trend isn’t expected to continue.

“Recent higher inflation is attributable to the temporary effects of higher energy prices, exchange rate pass-through and other sector-specific shocks, rather than to any change in domestic economic fundamentals,” according to the Bank of Canada’s most recent Monetary Policy Report.

The Bank also reiterated its disappointment with economic activity and adjusted its outlook for the global economy when compared to the previous Monetary Policy Report released in April.

The Bank of Canada provided some insight into the state of the global economy, “Serial disappointment with economic performance during the past several years has mainly reflected the impact of private-sector de-leveraging, fiscal consolidation and, especially, the lingering effect of uncertainty on business investment and trade. Nevertheless, the Bank continues to project that global growth will gather momentum as these headwinds abate.”

Variable rate mortgage holders in Canada can continue to enjoy historically low interest rates as the Bank of Canada reiterates its stance on fiscal policy and economic factors continue to encourage a lower overnight interest rate.

The Monetary Policy Report can be found in its entirety here.