piggy-bank-coin-house Photo: Images Money/Flickr

In its final scheduled interest rate announcement of the year, the Bank of Canada has once again held the key rate at 0.5 per cent.

The central bank had previously cut the rate by 0.25 basis points in January and further reduced it by another 0.25 basis points in July.

The key or overnight rate is the target rate for financial institutions when lending money among themselves and therefore affects everything from mortgage rates to consumer loans.

Despite acknowledging that vulnerabilities in Canada’s housing market are intensifying, the bank said its picture of inflation and the country’s overall financial stability is evolving as it had expected.

“Therefore, the target for the overnight rate remains at 1/2 per cent,” the central bank said in a statement.

The next scheduled interest rate announcement is January 20th, when the Bank of Canada will also release a Monetary Policy Report.

Many of Canada’s biggest banks weighed in on the decision with commentary of their own. Here’s what they said.

Bank of Montreal

BMO senior economist Benjamin Reitzes noted a departure in the actual structure of the Bank of Canada’s release that accompanied the interest rate announcement.

“Interestingly, the paragraph on inflation, which had been the first paragraph in the statement for much of the past two years, was moved to the bottom of the statement,” he wrote, adding this highlights the central bank’s lack of concern on that front.”

Looking ahead, Reitzes doesn’t expect the rate to move anywhere any time soon. “Today’s statement reinforces that the Bank looks to be on hold for the foreseeable future.”

Royal Bank of Canada

RBC also forecasts the Bank of Canada to keep the key interest rate right where it is until late 2016 given the impact lower oil prices have had on the economy.

“We expect the Bank to remain cautious and monitor developments with an eye to ensuring that activity in the consumer and export sectors more than compensates for the dampening effect of the oil price shock on investment activity,” wrote Dawn Desjardins, RBC Economics’ deputy chief economist.

RBC is expecting the Canadian economy to show growth this quarter after shrinking in the first two quarters of 2015, a development that technically put the country in a recession.

TD Bank

Like BMO and RBC, TD Bank isn’t predicting a rate hike in the near term, however, it has provided a slightly different timeline for when the next one may occur.

“We expect the Bank to keep rates at their current low level until the middle of 2017,” wrote Leslie Preston, a TD economist.

The reasoning behind this is that in addition to “high household indebtedness” and the “downturn in the resource sector,” the Bank of Canada must now consider the “imminent rate hikes in the U.S. which are expected to tighten financial conditions in Canada,” said Preston.


Reading between the lines, Scotiabank economists saw what could be a clue as to what future economic developments could mean for the Bank of Canada’s position on the key interest rate.

In the third paragraph of its statement today, the Bank of Canada said it “expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016.”

Scotiabank economists say that might be a hint as to what will ensue if this growth doesn’t occur. “They may be saying that if this doesn’t happen they will revisit the risks and perhaps reassess the stance of monetary policy.”

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