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Rates Drop by a 1/4 %

A big Christmas Present from the Bank of Canada with Interest Rates dropping by a 1/4 %. This is a bit of a surprise to me, since I was assuming they would keep them the same, however, this means maybe a strong Canadian dollar was not what the government actually wanted?

Bank of Canada lowers overnight rate target by 1/4 percentage point to 4 1/4 per cent

OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 4 1/4 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 4 1/2 per cent.

Since the October Monetary Policy Report (MPR), there have been a number of economic and financial developments that have a bearing on the prospects for output and inflation in Canada.

Consistent with the outlook in the MPR, the global economic expansion has remained robust and commodity prices have continued to be strong. The Canadian economy has been growing broadly in line with the Bank’s expectations, reflecting in large part underlying strength in domestic demand. However, both total CPI inflation and core inflation in October, at 2.4 per cent and 1.8 per cent respectively, were below the Bank’s expectations, reflecting increased competitive pressures related to the level of the Canadian dollar. The Bank now expects inflation over the next several months to be lower than was projected in the MPR. In the context of exceptional volatility in global financial markets, the Canadian dollar spiked well above parity with the U.S. dollar in November, but it has recently traded closer to the 98-cent-U.S. level assumed in the October MPR.

Overall, the Canadian economy continues to operate above its production capacity. Given the strength of domestic demand and weak productivity growth, there continue to be upside risks to the Bank’s inflation projection.

Will banks follow suit with a mortgage rate drop?

Feel Free to Comment

  1. I was a little surprised too. I thought I read that Flaherty (SP?) was quoted as saying he wasn’t as concerned about the dollar and needed to keep the inflation target more important. It’s resting at 2.4% which is in the top end of their range. I figured they would let it ride for the year and see what new things December brings.

    Since I work for a US based company but am paid in CDN, I like seeing the dollar dropping back down. It makes me feel like my job is much more secure when the dollar is below 0.90 and the company gets their labour for cheap.

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