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Friday, March 8, 2013 - Low rates to continue "for a period of time..."

Eight times a year, the Bank of Canada announces any changes to its trend-setting overnight interest rate. To no one's surprise, the Bank announced on Wednesday that the rate will remain unchanged at 1.0%. But a new phrase dropped in its news release is catching some attention.

Accompanying the decision on rates is a small text that explains the Bank of Canada's view of the economy and the amount of monetary stimilus currently in place. Over the past few years, the Bank has maintained an upward bias-a suggestion that rates will rise at some point in the future. In January, the Bank stated that rates will rise at some point in the future. In January, the Bank stated that the need to reduce stimulus by raising rates "is less imminent than previously anticipated." In other words, the upward bias was still there, but with less urgency.

On Wednesday, the Bank's statement was more dovish-the upward bias remains, but with less urgency than before. In the final line of its release, the Bank states "...the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required..."

While both the Federal Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have warned Canadians about taking on too much mortgage and consumer debt, the favourably low borrowing costs will continue "for a period of time." Given the state of the global economy, and the slack here in Canada, rates could easily remain this low for another 12 to 18 months.*

* Courtesy of Todd Hirsch, Senior Economist, ATB Financial

posted in General at Fri, 08 Mar 2013 16:38:02 -0700

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