In an announcement that came as a shock to no one, the Bank of Canada announced today that it is maintaining its target for the overnight rate at 1 per cent. (Tweet this)
Several economists had predicted this outcome, with some stating they do not anticipate a rate increase until at least mid-2015.
While Canadian GDP growth came in stronger than expected in the third quarter of 2013, the Bank said that underlying growth is in line with its projections.
In a press release that accompanied the announcement, the Bank noted that the housing sector has been “stronger than expected but is consistent with updated demographic data and a pulling forward of home purchases in light of favourable financing conditions.”
The Bank also said that it expects a soft landing in the housing market. This view is in line with Bank of Canada Governor Stephen Poloz’s testimony to the Senate Banking Committee in November during which he said that a bubble does not exist in the Canadian housing market.
Weaknesses in non-commodity exports, a slower than expected rise in business investment spending and low inflation were also given as reasons for the Bank maintaining the 1 per cent rate, which it characterized as “substantial monetary stimulus.”
January 22nd, 2014 is the next scheduled date for announcing the overnight rate target. The Bank of Canada will be publishing a full update of its outlook for the economy and inflation then as well.
While many Canadian economists don’t foresee a rate hike until mid-2015, the OECD recently recommended that the Bank of Canada raise the rate by late 2014 and continue to nudge it upwards until it reaches 2.25 per cent by the end of 2015. The Paris-based think tank cited concerns over low mortgage rates and record high levels of household indebtedness as reasons why the rate should be hiked sooner.
During his testimony to the Senate Banking Committee, Stephen Poloz referenced these concerns and said his outlook differed from the OECD’s.