Bank of Canada to keep one per cent interest rate (and experts doubt it’s going up anytime soon)

Flickr photo The Global Economic Outlook: Mark J. Carney by World Economic ForumDespite earlier warnings that interest rates will have to rise soon, the Bank of Canada announced today that they’ve opted for later – for the time being anyway.

The central bank won’t be making changes to borrowing costs anytime soon. Rates haven’t budged since the current 1 per cent level was introduced in September 2010.

The reasoning behind the decision? In their official statement, the policy makers said it was because of the less-than-stellar Canadian economy and the muted inflation outlook.

Mark Carney previously expressed concern over an overheating housing market, which played a part in the decision too: “with the more constructive evolution of imbalances in the household sector, the considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target.”

Industry experts were surprised at the statement, not because they were counting on a rate-hike, but because of the wording of the news.

Douglas Porter, chief economist at BMO Capital Market, told the National Post, “I think most believe that the bank is going nowhere for a long period of time. But to have the bank actually spell it out so explicitly was a little bit of a surprise,” he said. “They’ve been a little bit stronger in their language than most had expected.”

As far as the housings concerned, Porter suggested that because there seems to be a bit more confidence in the market, “that makes it even less important for them to consider rate hikes with the housing sector already settling down.”

Capital Economics in Toronto responded more boldly to the news. They told the newspaper they expect the Bank of Canada “will drop any pretense that rates may rise over the next couple of years, with the next move in interest rates more likely to be down rather than up.”

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