Interest Rates in Canada
The Bank of Canada has decided to keep its benchmark interest rate at 1%. However there may be more gradual increases that will come.
The bank’s rate is officially known as the target for the overnight rate and this has a large impact on the rates that retail banks offer to consumers for accounts and loans.
The Bank of Canada has already hiked its interest rates twice this year, after not changing it in the last 2 years.
This comes after signs that Canada’s economy began heating up and now with economic indicators a little more subdued, it helps to explain the cautious tone that the Bank of Canada is taking. Meaning that it expects the recent strength of the Canadian dollar to slow the rise in the pace of inflation.
At this time there also appears to be a lot of unknowns when it comes to geopolitical developments, as well as trade policies with the United States, including the renegotiation of the North American Free Trade Act.
The Bank also stressed that it will pay particular attention to incoming data to assess four major areas: he unfolding impact of higher interest rates on indebted households, the evolution of the economy’s capacity, wage growth and inflation.
The bank forecasts declining contributions from residential investment and consumption, which largely fuelled Canada’s recent growth spurt. These changes will largely be consequences of higher borrowing rates, higher household indebtedness and policy measures aimed at cooling hot real estate markets, the report said.
Moving forward, the bank said economic activity will advance on a “more sustainable” trajectory led by rising foreign demand, recent increases in commodity prices, still-low borrowing rates and government infrastructure spending. It also projects steady growth in business investment, which rebounded in early 2017.