Bank of Canada Finally Admits Rates to Remain Low

Canadian Interest Rate

In a speech at the Richard Ivey School of Business, Mark Carney admitted that the benchmark interest rate would remain at its current low of 1% into 2014.  While it’s been painfully obvious to industry players that the Bank of Canada (BOC) could not raise interest rates due to the serious negative consequences, Mr. Carney and the BOC had been threatening rate hikes for most of 2012.  This empty threat was based on good intentions as the Bank has been trying to dissuade consumers from taking on more debt.

Earlier this year the Bank of Canada finally halted the threat of a rate increase and in yesterday’s stunning turnaround assured consumer that the prime lending rate won’t be increasing for at least another full year.  What would make this turnaround complete, however, would be for the Bank to signal a decrease in the benchmark interest rate, and that just might be the reason for the timing of this latest admission.

International and domestic economic indicators have been weaker than expected for much of the past 6 months forcing other nations to hold or lower their benchmark lending rates.  The Bank of Canada’s current stance takes a rate hike off the table, but what’s more interesting is that it now opens the door for a rate drop.

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