Interest Rates and the Deathly Hallows
The Bank of Canada decided against increasing it’s overnight rate from it’s existing rate of 1%, which means at least one more month of loose money morals in terms of lending in Canada. While banks have been fiddling around with mortgage and lending rates trying to predict future Bank of Canada policies, the BofC itself has not changed it’s rates in quite a while, and barring Europe or the U.S. having a complete credit melt down (which is not that far out of the question), rates look to stay this way for a little while longer.
An interesting quote from the Bank is:
Total CPI inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices. Core inflation is slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services. Core inflation is now expected to remain around 2 per cent over the projection horizon. Total CPI inflation is expected to return to the 2 per cent target by the middle of 2012 as temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.
So they are hopeful inflation will drop back a little (which will only happen if Gas prices moderate, or a huge drop in other aspects of the index), which will mean lower interest rates along with it. I think this is optimistic, but then again, I have been wrong before (and will be wrong again).
Remember that the May Inflation rate was about 3.7% from Stats Canada, and there is no way that interest rates can stay lower if this keeps up, but our Bank of Canada friends seem to be confident this is a minor bump in the road, but again, we shall see.
The line to read clearly is their comment on world events:
The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.
In other words, be careful, if you think things are getting better, they can get much worse, pretty quickly. We won’t hear again from the Bank of Canada until after Labour Day, unless there is a sudden catastrophic economic situation that arises (say like the above quote?).