Will BoC Leave Rate Unchanged Until 2015?
The Bank of Canada came out with their interest rate announcement yesterday, and it’s not shocking that the rate will remain at 1 per cent for at least the next six weeks. But what might be surprising is the Bank’s talk with this announcement, which made it sound as though leaving the rate at its historic low might be something that continues until 2015.
That’s because while household debt is currently stable, the Bank is concerned that rising mortgage rates will start to knock that stability with it, and possibly take households with it. What’s even more though, is the fact that the economy has seen little growth, and definitely less than what was expected. But since they’re not expecting the economy’s growth to pick up by the end of 2015, does that mean that we could be looking at low rates for at least another year?
“The Bank judges that the substantial monetary policy stimulus currently in place remains appropriate and therefore has decided to maintain the target for the overnight rate at one per cent,” the Bank said in a statement released Wednesday.
“In Canada, uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment, leaving the level of economic activity lower than the Bank has been expecting,” the announcement continued. “While household spending remains solid, slower growth of household credit and higher mortgage rates point to a gradual unwinding of household imbalances.”
It’s the next statement that’s really interesting though, as it points to the fact that we could be enjoying a low overnight rate by t he Bank until 2015, when the economy is expected to pick back up.
“The Bank expects a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining. Real GDP growth is projected 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.”
Do you think our overnight rate could remain where it is for another year or more? That would make it close to five years that the interest rate remained at such a low. Or do you think that the Bank should be starting to gradually increase that rate right now, and give those that are saving a bit of a break finally, allowing their money to work even harder for them?