The Bank of Canada surprised most economists in this country by this morning declaring that they would not change the key overnight rate from its current 3%. This is the rate that is used to lend funds to financial institutions across the nation, who in turn lend funds to consumers. Typically, when it drops, banks will also decrease their rates for adjustable-rate mortgages. When it increases, consumers will see a rise in their rate.
The Bank cited better-than-expected global economic growth, which has offset the lessening demand for Canadian goods in the United States. Record high commodity prices (hello, $130+ oil!) have helped to push the Bank’s forecast for total CPI (consumer price index) inflation to more than 3% for 2008. The Bank’s goal is to maintain core inflation at 2%. They state in their release that the Canadian economy is operating in a state of excess supply (less demand for our goods, most notably from the U.S.), which should balance out inflation to keep it at 2% this year. The Bank foresees steady economic growth over the next 2 years, and will monitor inflation closely to keep it in check.
My interpretation is that we won’t see another rate cut for awhile. If the Bank feels that inflation is being held in check by global economic conditions, then they probably won’t increase the rate in the near future. This is good news for buyers, and home owners with adjustable-rate mortgages. My monthly payments have decreased by over $100 in the last year with these rate cuts.
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