Consumers and businesses in Canada have benefitted greatly from very low interest rates since the economy took a tumble in late 2008. And according to the Bank of Canada’s (BoC) first rate announcement of 2012, rates are remaining near rock-bottom lows.
The BoC surprised no one this morning and left the overnight interest rate unchanged at 1.0%. The overnight rate is the rate that banks in Canada lend money to each other for one day or “overnight,” and is used to determine many consumer interest rates such as the prime rate. The overnight rate has been at its current level of 1.0% since September 2010.
This morning’s BoC release was fairly cautious, noting that “the recession in Europe is now expected to be deeper and
longer than previously thought,” growth in the US is expected to remain slow and growth in the Chinese economy is slowing to “a more sustainable pace.”
On the bright side, the BoC noted that the Canadian economy performed stronger than anticipated in the second half of 2011. However, given all the global headwinds, economic growth in Canada is expected to be more modest in 2012.
Given all the uncertainty there is a good chance the BoC will hold off raising rates at all in 2012. With the overnight interest rate already at very low levels, the BoC may also refrain from cutting rates unless the situation in Canada takes a serious turn for the worst. Expect more of the same from the BoC for much, if not all, of 2012.*
*Courtesy of Dan Sumner, Economist, ATB Financial