Bank of Canada holds overnight rate at 1.00%

Statement provides hedge against inflation remaining below target...

  • The Bank of Canada left the overnight rate unchanged at 1.00% as expected.
  • The Bank says monitoring data to determine “timing and direction of the next change to the policy rate.”
  • It reiterated that overall balance of risks in same “zone” as October.
  • Today’s statement, while on the margin more upbeat on the growth outlook than in previous months, hammered home the Bank’s concerns about inflation remaining below target for a sustained period and the risks that this underperformance will continue. Our forecast for Canada’s economy in 2014 is for growth to accelerate to a 2.6% pace with both the export sector and investment activity picking up. By our estimate, the output gap will be eliminated in the second half of 2015; at which time, the inflation rate will be within reach of the Bank’s 2.0% target. Against this backdrop, we see little need for the Bank to lower the overnight rate, and while we expect the next move will be a hike, no changes are on tap for 2014.


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Today’s Bank of Canada rate hold announcement marks almost four straight years that the key benchmark rate has remained unchanged, since September 8, 2010. Great news if you have a variable-rate mortgage or home equity line of credit; the prime rate stays at 3%.


The announcement noted that “the risks to the outlook for inflation remain roughly balanced, while the risks associated with household imbalances have not diminished.” With these considerations, the Bank is maintaining its monetary policy stimulus, and remains neutral with respect to the timing and direction of the next change.


The next rate-setting day is October 22nd.

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