Today the Bank of Canada announced that it will maintain its key overnight rate for the time being.
In its announcement,
With the US economy continuing to grow at a solid pace and commodity prices continuing to decline, the Bank predicts a prominent theme in the months to come will be policy divergence between Canada and the US. This likely means that interest rates will creep up in the US before they do the same in Canada.
A devalued dollar, a strong US economy and low interest rates are helping Canada's economy achieve the Bank's economic growth predictions, but low commodity prices continue to significantly impact the resource sector. The Bank though still expects GDP growth to be moderate in the fourth quarter of this year before moving higher in 2016.
The single biggest factor influencing interest rates, as usual, is inflation. Core inflation rate is very close to the Bank's 2 percent target, and total CPI inflation is close to the bottom of the 1-3 percent target range. This would be the primary reason that the Bank has decided to leave the overnight rate at .5 percent. Financial Institutions will likely follow suit and leave the Prime lending rate at 2.7%.