The Bank of Canada held its benchmark overnight lending rate steady at 0.25 per cent at its setting on September 10th, 2009. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 0.5 per cent.
The Bank said that, in line with its expectations, aggressive policy stimulus and the stabilization of global financial markets are supporting the beginnings of a recovery in Canada and elsewhere.
In its July Monetary Policy Report, it expected inflation to bottom out in the fourth quarter of 2009. In its September announcement to hold interest rates steady, the Bank moved that timetable forward to the third quarter, but reiterated its forecast for inflation to return to its two per cent target in the second quarter of 2011.
The Bank’s commitment to keep interest rates on hold until the second half of next year hinges on its outlook for inflation. Since inflation is not expected to pick up sooner than it previously expected, the Bank repeated its commitment to keep interest rates on hold. “Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.”
The Bank also said, “that the overall risks to its inflation projection are tilted slightly to the downside,” and “persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target.”
“The bottom line for interest rates is that they are as low as they can go, so the Bank can’t drive them down any further in an attempt to boost economic growth and take the shine of the dollar,” said CREA Chief Economist Gregory Klump. “That said, the Bank can take extraordinary measures to prevent a rapid or speculative run-up in Canadian dollar, and financial markets have judged the Bank’s threats to do so as credible. The Bank’s September announcement further anchors its commitment to ensure the Canadian economic recovery is not derailed by a rapidly rise in the Canadian dollar.”
On September 10th, the advertised five-year conventional mortgage rate stood at 5.85 per cent. This is down one per cent from one year earlier, and unchanged from where it stood when the Bank made its previous interest rate announcement on July 21st.
Improving credit market conditions have enabled lenders to reintroduce discounts off posted mortgage interest rates. Discounts of up to a percentage point can be negotiated, depending on lender-client relationship.
(CREA 09/10/2009)
