While the Canadian economy continues to grow at a slower pace than expected, last week’s release from the Bank of Canada wasn’t all doom and gloom. Consumer debt and the housing market finally appear to be stabilizing here in the Great White North, at the same time debt concerns in the United States and Europe have begun to dissipate.
As such, the message was clear from Bank of Canada Governor Mark Carney last Wednesday – interest rates aren’t going anywhere anytime soon.
Last Wednesday’s report was the first time that policymakers combined their regularly scheduled rate decision release with the Bank’s Monetary Policy Report, one of the nation’s most important quarterly statements concerning the state of domestic and global economic factors.
Business As Usual
As expected, the Bank of Canada announced that they will continue to keep borrowing costs low, maintaing its trendsetting overnight rate at a 1 percent low. This rate has remained unchanged since September 2012 making it the longest dormant stretch since the 19050s.
Even so, analysts were surprised by the tone of the statement.”Dovish” was the word that a handful of analysts used to describe the announcement, which revised the Bank’s projected interest rate and pushed a possible increase to 2014. The announcement cited excess capacity and soft inflation as the contributing factors to this decision:
Total CPI inflation is expected to remain around 1 per cent in the near term before rising gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well-anchored.
The Bank also adjusted their economic forecast based on this new information, updating their Monetary Policy Report estimates as follows:
Following an estimated 1.9 percent in 2012, the economy is expected to grow by 2.0 percent in 2013 and 2.7 percent in 2014. The Bank now expects the economy to reach fully capacity in the second half of 2014, later than anticipated in the October Monetary Policy Report.
The Bank expects growth to pick up through 2013, citing a rebound in investments and exports as foreign demand strengthens. Consumption is also expected to grow moderately, while residential investments will decline from their recent historically high levels.
Reading Between the Lines of the Monetary Policy Report
According to January’s revised economic outlook, near-historic lending rates from the nation’s financial institutions have slowed the growth of household credit from 5.5 percent last year to slightly more than 3 percent in the first quarter of 2013. According to the report, this is the lowest rate of growth since 1999 and reflects a slowdown in the growth of both residential mortgage and consumer credit. This latest release puts the nation’s ratio of household debt to income at 165 percent.
Canadian mortgage holders and financial experts can review the Bank’s statement online here. The full Monetary Policy Report can also be downloaded from the Bank of Canada’s website.
The next scheduled date for announcing the Bank’s overnight rate is March 6th. The next Monetary Policy Report will be released on April 17th. It’s also worth noting that Carney will be stepping down as the Bank’s Governor on June 1 in order to take the top position with the Bank of England.
Stay tuned to the Mortgage Talk Blog for more information on interest and mortgage rate changes.