The Bank of Canada announced on December 4th 2013 that it was keeping its trend-setting overnight lending rate at 1 per cent. It has been at this level since September 2010.
Consistent with its previous announcement and Monetary Policy Report (MPR) in October, the Bank is no longer indicating that its next move will be an increase in interest rates.
The Bank has also indicated that it is more comfortable with the situation in the housing market and “continues to expect a soft landing.” The Bank also noted that recent strength in the housing market is “consistent with updated demographic data and a pulling forward of home purchases in light of favourable financing conditions.”
Third quarter growth in the United States was stronger than the Bank had forecast. However, some of that pickup was due to temporary factors and the global economy is still expanding at a modest rate as the Bank had predicted in its October MPR.
Despite a pickup in Canadian GDP growth in the third quarter, the Bank acknowledged that “its composition does not yet indicate a rebalancing towards exports and investment.”
The Bank still expects that the output gap will close by the end of 2015, but dropped any mention of when the inflation rate is expected to return to the two per cent target.
The most recent reading of the Consumer Price Index put inflation at 0.7 per cent in October, which is below falls outside of the Bank’s official target band of one to three per cent.
In the final paragraph of the release the Bank noted that the “risks associated with elevated household imbalances have not materially changed, while the downside risks to inflation appear to be greater.” This tips the balance of their next move slightly towards a decrease in rates rather than an increase. However, unless the economic outlook deteriorates further the most likely scenario is that the Bank will keep interest rates on hold for quite some time yet.
As of December 4th, 2013, the advertised five-year lending rate stood at 5.34 per cent, unchanged from the previous Bank rate announcement on October 23rd.
The next interest rate announcement will be on January 22nd 2014 and will be accompanied by an update to the Monetary Policy Report.