No Interest Rate Hike Expected In Near Future Per Bank Of Canada

The Bank of Canada concedes that the nation’s economic picture is currently a bit weaker than expected, that same entity did predict a reversal in the near future. Growth on the economic front in Canada did not quite live up to the predictions by the Bank or a considerable number of financial analysts. At the same time the housing market and consumer debt situation seem to be stabilizing. In the United States and across Europe, there are still concerns about debt and the markets, but things are improving.

All of this adds up to the Bank of Canada deciding that interest rates should remain where they are, and stay there for the foreseeable future.

In a rare move, the announcement that the Bank of Canada was not raising the interest rate was coordinated with the release of their Monetary Policy Report. This quarterly publication outlines all the factors, domestic and global, that affect Canada’s economy.

The interest rate will remain at one percent, where it has been since September of 2010. This is also the longest period that the interest rate has remained unchanged since the 1950s. The idea is to help the inflation rate reach the preferred two percent target.  What made this rate announcement a tad different was the mention of household debt as an issue, and that there was no date in sight for that eventual increase.

Most analyst view this as a softer reaction to the Canadian economy than what was predicted.  These same analysts don’t expect a raise in rates until much later this year or perhaps early in 2014.

The Wednesday report showed that economic growth on the global front for 2012 came in at three percent. That is slower than the 3.9 percent seen in 2011. In 2013 that growth is expected to come in at roughly 2.9 percent, while in 2014 it is expected to pick up and reach 3.5 percent.

In Canada, economic growth for 2013 is expected to be roughly two percent, which is less than the 2.4 percent predicted by the Bank of Canada this past October. Last year saw a 1.9 percent growth, when the prediction had been for 2.3 percent. As for 2014, the Bank of Canada expects a 2.7 percent growth, with most of that coming in the later half of the year.

Exports in the manufacturing sector are still modest, compared to the numbers seen before the recession. Much of this is due to decreased exports to the United States. That should improve, as the economy south of the border is expected to grow by 2.1 percent in 2013 and 3.1 percent in 2014.  The United States’ economy is improving, albeit slowly. Major hindrances to a speedy recovery are the fiscal negotiations in Washington DC, a global weakness and deleveraging by private and public entities.

The recession is still holding on in Europe, with a slower recovery than predicted in October. China’s financial growth is improving, but is still being affected by troubles in some of the other emerging economies. All of these predictions are based on Europe getting a firmer handle on their economic situation and the United States avoiding the sequester or another fiscal cliff.

The Bank of Canada also noted that household credit has slowed from 5.5 percent last year to three percent during the first part of 2013. That means less household debt, currently sitting at a ratio of 165 percent.

Mark Carney, governor of the Bank of Canada, will be leaving on June 1, 2013 to take over the leadership of the Bank of England.

Post a Comment