canadian-money

Photo: Sara Long/Flickr

The Bank of Canada announced yesterday that it was maintaining the key interest rate at 0.5 per cent, drawing comments from some of the country’s biggest financial institutions.

TD Bank said the move was “widely expected.” Keeping the rate where it was acknowledged Canada’s recovery from the recession it fell into during the first six months of 2015, TD said.

It also took into account the fact that the economy is still adjusting to slumping oil and other commodity prices. “The current level of monetary policy stimulus is necessary to facilitate this ongoing adjustment,” said TD Bank.

The key or overnight rate is the target interest rate for day-to-day transactions between the big banks. The rate has broader implications, however, as it influences consumer loans and mortgages.

Looking ahead TD expects the central bank to stay the course until the latter half of 2017. At that time, TD forecasts “modest” interest rate hikes to begin.

That’s also the period when the Bank of Canada predicts the Canadian economy “to return to full capacity,” it said in the rate release.

Since 2000, the Bank of Canada has announced the key rate eight times a year. It will make its next and final announcement of the year on December 2nd.

Twice this year, in January and July, the central bank reduced the rate by 25 basis points. The first of the cuts came as a surprise. The second was questioned by more than one financial institution.

Of the second cut, Stephen Poloz, the central bank’s governor, said, “Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainability to target.”

This time around, in a speech Poloz said the Bank of Canada considered a number of factors that ranged from the effects of lower oil prices on the GDP to policies in China. “Taking all of these developments into consideration, the Bank judges that the current stance of monetary policy remains appropriate.”

That said, like TD Bank, RBC is predicting the Bank of Canada will close out the year without further action. “We expect that it will remain patient and hold the policy rate steady,” wrote Dawn Desjardins, RBC’s assistant chief economist.

Desjardins attributed this view to the tone of the central bank’s statement that accompanied the rate announcement. She said it displayed signs of confidence that Canada’s economy is working its way through the impacts of commodity prices, as TD suggested.

Meanwhile, the Bank of Montreal said the outcome of the recent federal election, which saw the Trudeau-led Liberals oust the Harper Conservatives, could influence the next Bank of Canada interest-rate announcement.

“Our view remains that if the new federal government goes ahead with its relatively aggressive spending plans (and a $10 billion deficit by next year), this further reduces the chances (and the need) of any further BoC rate cuts,” the bank said.

Developments featured in this article

More Like This

Facebook Chatter