The Bank of Canada kept its key policy rate at One per cent on March 6th 2013. It has been unvaried at this level for at least 2 years, marking the longest period since the early 1950s that rates have been left untouched.
While the Bank did maintain its previous steerage that the next move will likely be a rate jump, one way in which the Bank did take a rather more dovish stance was by way of what it didn't say this time, namely the warning it issued in January that raised rates could be required if shoppers continued to accumulate debt. The Bank referred to recent developments in the housing sector as "constructive", and reasserted its expectancy that household credit expansion would continue to moderate, with the household debt-to-income proportion stabilizing near current levels.
This looks like an indication that the Bank is starting to become more relaxed with consumer borrowing and the housing market.
The Bank announced its expectations for overall fiscal drag coming from the U.S.
Despite the weak, though mostly anticipated reading for Canadian economic expansion in quarter 4 of 2012, the Bank asserted it still expects Canadian commercial growth to pick up through 2013 driven by "solid business investment" and "a recovery in exports". Over the next two years were principally unchanged, although it is now certain to be more front-loaded owing to sequestration spending cuts. This, combined with the weak handoff for growth from late 2012 into 2013, could mean a downgrade to the Bank's current prediction for expansion of Two percent this year ; however that outlook may not be revisited till the Bank's next Monetary Policy Report slated for release on April 17th.
All that said the base line remains unvaried, specifically that business growth is predicted to stay modest but positive, consistent with low inflation and low interest rates. Growth in household debt burdens, which the Bank has frequently flagged as a major risk in this low rate of interest environment, continues to show positive indications of topping out as housing market activity continues to stabilize at a rather more sustainable levels.
At the exact same time, expectancies for inflation remain amazingly well anchored, so that the Bank will be in no rush to raise interest rates anytime soon. At about that point, the 1st such policy move not likely until 2014 at the earliest, and even that presupposes that some of the more recent developments are basically a temporary soft patch, which remains to be seen. It has been unvaried at this level since the beginning of June 2012.
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