The Bank of Canada is remaining steady in its current economic strategy, announcing Wednesday morning that its overnight target rate will stay at 1 per cent.
The Bank has observed stronger growth in the Canadian economy in recent months, stating Wednesday that “the first quarter was stronger than the Bank projected in April.”
In the release, the Bank said all indicators show the Canadian economy as a whole is moving in a positive direction and predicts that consumer spending and business investment will continue to grow as residential investment declines throughout the year.
The Bank also notes that “growth in total household credit is slowing,” and “the household debt-to-income ratio will stabilize,” contributing to domestic economic growth.
But the global economy is still shaky in places, as Europe “remains in recession,” and China’s slowed growth continues to affect commodity prices.
Mike Moffatt, an economist with the Richard Ivey School of Business at Western University, said the struggles of Canada’s trading partners continue to guide the Bank’s long-term strategy of keeping the overnight rate at 1 per cent.
“It was absolutely expected. This comes as no surprise to anybody,” said Moffatt. “The Bank of Canada realizes that one of the largest drivers of growth for Canada is international commodity prices.”
Since the rate hasn’t moved since September 2010, economists have been paying closer attention to the language used by the Bank, looking between the lines for any hints as to the direction it might take in the future.
In Moffatt’s view, any changes are likely a long way off.
“The one thing I found interesting is they say that total and core inflation is expected to remain for the incoming quarters before gradually rising to 2 per cent in mid-2015. Given that’s two years out, that doesn’t seem overly optimistic,” he said. Currently inflation stands at 0.4% while core inflation is at 1.1%.
“While things are improving, the Bank seems to think that they’re going to improve very, very slowly.”
Moffatt doesn’t anticipate a rate change anytime in the next 12 months. When 2014 does roll around, any adjustment will likely be in the form of a rate hike. The average Canadian likely won’t see any changes in mortgage or car loan rates for several months.
“It’s pretty much just par for the course, steady as she goes,” added Moffatt.
The announcement was Mark Carney’s last statement as Governor, as he leaves Canada to take on the same role at the Bank of England in the coming days. His replacement is Export Development Canada president and CEO Stephen Poloz. Poloz’s first overnight target rate announcement as governor will take place July 17.