Bank of Canada maintains overnight lending rate at 1 per cent

In December last year, the Bank of Canada had decided to maintain its target for overnight lending rate at 1 per cent, and the bank stuck with its economic assessment when it announced on May 29, 2013, that the key policy rate will not be changed from the existing overnight lending rate.

In an announcement back in April, the Bank of Canada acknowledged the prevalent economic issues and consequently cut its Canadian economic growth forecast to 1.5 per cent. Despite the unexpectedly positive growth in the first quarter, the Bank is still moving ahead with the same policies and expects the annual growth to be within the forecasted range.

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

Likewise the economic growth prediction, consumer price index inflation was also lower than the Bank’s projection in its April monetary policy report, but the Bank is still expecting inflation to reach the targeted value (2 per cent) in the second quarter of 2015.

“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,” Klump stated.

“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,” he added further.

The advertised five-year lending rate holds at 5.14 per cent as of May 29, 2013 – the same rate which was announced by the Bank of Canada in April.