Bank of Canada Maintains Key Rate

The Bank of Canada (BoC) today announced that it is maintaining its target for the overnight rate at 1/2 per cent. Correspondingly, major financial institutions Prime rates should be staying at 2.7%, or 2.2% above BoC’s Key rate. Inflation remains under control in the eyes of the BoC and global economic growth remains weaker than expected in 2015.

Canada’s economy has rebounded, as projected by the BoC in July. Household spending continues to underpin economic activity and is expected to grow at a moderate pace. However, lower prices for oil and other commodities since the summer have further lowered Canada’s terms of trade and are dampening business investment and exports in the resource sector. This has led to a modest downward revision to the Bank’s growth forecast for 2016 and 2017.

This means lower rates will continue for a prolonged period of time, compared to previous thoughts and projections last year. Lower energy prices have thrown a monkey wrench into the Canadian economy and the Canadian currency remains a petrol dollar. The lower dollar should spur Canadian manufacturers & exporters because of their currency competitive position for the time being. But as is the Canadian way this will likely not be exploited as urgently or thoroughly as it would be in the U.S.