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Bank of Canada Maintains Interest Rate at 1%

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Bank of Canada Maintains Interest Rate at 1%

The Bank of Canada decided today to hold the overnight interest rate at 1 percent, marking the 29th consecutive time the cost of borrowing has been left unchanged.

The central bank has pegged the interest rate at 1 percent since September 2010. While not unexpected, today’s decision comes amid signs the Canadian economy was performing better than initially expected. Manufacturing shipments, a report released yesterday by Statistics Canada, suggested demand for manufacturing products was increasing. Manufacturing sales jumped 1.4 percent to $51.2 billion in February, the highest level since July 2008.

Despite recent improvements in the Canadian economy, policymakers at the BOC still have ample space to keep interest rates highly accommodative as the nation of 35 million continues to recover.

“Inflation in Canada remains low,” read an official press release from the BOC. “Core inflation is expected to stay well below 2 per cent this year due to the effects of economic slack and heightened retail competition, and these effects will persist until early 2016. However, higher consumer energy prices and the lower Canadian dollar will exert temporary upward pressure on total CPI inflation, pushing it closer to the 2 per cent target in the coming quarters.”

As expected by some, it appears the BOC is trying to “talk down” the Canadian dollar, whose recent surge put it above 91 US cents. A lower loonie, it is believed, will help kickstart the export sector and equalize labour costs across borders.

The central bank said it expects Canadian GDP to average around 2.5 percent in 2014 and 2015 before easing to around 2 percent in 2016. Recent forecasts from the International Monetary Fund suggest Canada will be among the faster growing economies over the next two years.

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