Canada’s Central Bank Expected To Keep Interest Rates Low

16 April 2012 09:30am - Florence Fullalove

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Canada’s Central Bank Expected To Keep Interest Rates Low

The Bank of Canada is expected to keep its lending rate at 1% where it has been since September 2010. Economists widely predict that the central bank’s governor, Mark Carney will hold back from raising borrowing costs. They also forecast that it could be many more months before the Bank moves off from 1%, especially with the US rate likely on hold until 2014 which has increased concerns that further widening the gap in the cost of money between the two countries will have serious implications for the Canadian dollar. Caney recently said that Canadians have never been so indebted. His major concern was a shock to house prices or higher rates that would reduce household assets and increase financing charges, leaving little in consumers’ pockets for purchases that stimulate the economy. Carney acknowledges that he was prepared to intervene in an emergency but he also noted that more direct policy actions, such as a further tightening of mortgage rules would be more effective.

Douglas Porter of BMO Capital Markets said “The central banks are very concerned about the household debt situation and the strength of the housing market, and the overall stability of domestic spending, and it just isn’t consistent with an overnight rate below inflation.” He also added, “But unfortunately they face this eternal tension of a healthy domestic economy and a shaky external environment.”

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