Bank of Canada maintains course for rates

In its April announcement, the Bank recognized the persistent economic weakness and cut its forecast for Canadian economic growth to 1.5 per cent in 2013. Although recent economic news suggests that growth in the first quarter came in stronger than expected, the Bank nonetheless expects annual economic growth this year to remain in line with its forecast.

Similarly, total CPI inflation was slightly weaker than projected in the Bank’s April MPR, but the Bank still expects inflation to reach its 2 per cent target in mid-2015.

“The Bank recognizes that growth in household debt is moderating,” said Gregory Klump, CREA’s Chief Economist. “It’s a constructive development and yet another reason for the Bank of Canada to keep interest rates on hold.”

“The bottom line is that inflation remains moribund and the Canadian economy is still in low gear, so there is no reason for the Bank to start raising interest rates any time soon,” said Klump. “Additionally, the Bank of Canada knows that a sudden shift in direction for interest rate policy would spook financial markets and gives the Bank another reason to keep interest rates on hold once incoming Bank of Canada Governor Stephen Poloz takes the helm.”

As of May 29th, 2013, the advertised five-year lending rate stood at 5.14 per cent, unchanged from the previous Bank rate announcement on April 17th.

(CREA 05/29/2013)