Overnight rate remains the sameYet again, the Bank of Canada has decided to keep target for the overnight rate the same at 1% -- so variable rate mortgage holders can breathe another collective sigh of relief. Part of the reasoning behind the Bank’s decision revolves around the slower-than-expected growth of the U.S. economy, as well as ongoing financial trouble in Europe and Japan (which is recovering at a slower-than-expected pace). In Canada, things are looking good – with the overall economy functioning as projected, for the most part, and household spending and business investment remaining strong. The biggest obstacle is our net exports, which remain quite weak thanks to decreased U.S. demand and the high Canadian dollar. Total CPI inflation is sitting above 3% -- well above its 2% target – and the Bank expects it to stay there until the middle of 2012 when food and energy prices are projected to go back to normal. Core inflation is slightly firmer than anticipated, and is expected to stay around 2% over the next little while. The Bank’s next announcement will be in September. Half of Canada’s primary 12 securities dealers, which deal directly with the Bank of Canada, expect the bank to hike rates at that time, according to a Reuters poll, while the rest forecast hikes somewhere between October, 2011 and the second quarter of 2012. Investors, on the other hand, see little chance of rate increases in the remainder of the year.    |
