As was widely expected, the Bank of Canada continued to hold its benchmark overnight rate target at 1.00% where it has been since September of last year. With Bank prime at 2% over, prime remains at 3% (prime changes affect floating rate: Variable rate mortgages and Home Equity Lines)
In its communiqué, the Bank noted a laundry list of risks currently facing the global economy: the Tohoku earthquake, geopolitical risk in the Middle East and Northern Africa, European sovereign debt, and broader global inflationary pressures due to rapid emerging market growth. Ultimately, the Bank judged that despite these risks, the global economic recovery was becoming more firmly entrenched and is expected to continue at a steady pace
Despite the upgrade to Canada’s economic performance, today’s even-handed statement suggests that the Bank of Canada does not appear to be feeling enormous pressure to resume interest-rate hikes at this point in time.
We still believe that a July rate hike is the best bet. Notably, by that time the U.S. Federal Reserve will have completed its second round of quantitative easing, reducing the risk of further upward pressure on the Canadian dollar. The Bank today served up a reminder of the downside risks to growth and inflation surrounding the elevated Loonie