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BoC avoids rate hike and holds overnight rate at 1%

But rate increases are expected for early or mid-2018
BoC avoids rate hike and holds overnight rate at 1%
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Today the Bank of Canada chose to leave the overnight rate at 1%. Economists and the markets expected this no-change in interest rates stance, as BoC’s Governor, Stephen Poloz, had hinted that economic growth was on target and while the central bank was keeping an eye on inflation there was no immediate concern, as yet.

“Inflation has picked up in recent months, as anticipated in the Bank’s July Monetary Policy Report (MPR), reflecting stronger economic activity and higher gasoline prices,” the BoC stated in a press release this morning. “Measures of core inflation have edged up, in line with a narrowing output gap and the diminishing effects of lower food prices.”

Expect next rate increase in 2018

The real news, however, was the Bank’s anticipation of inflationary increases for 2018. “The Bank projects inflation will rise to 2% in the second half of 2018. This is a little later than anticipated in July because of the recent strength in the Canadian dollar.”

That means borrowers should expect additional increases in interest rates by late spring or early summer of next year.

Of course, the BoC did stipulate that anything could happen between now and then: “The Bank is also mindful that global structural factors could be weighing on inflation in Canada and other advanced economies.”

While the BoC still anticipates global growth to average around 3.5% over 2017 to 2019, it acknowledged that this outlook is subject to “substantial uncertainty about geopolitical developments and fiscal and trade policies, notably the renegotiation of the North American Free Trade Agreement.”

Prior two rate increases

The nation’s central bank did increase the target rate twice in 2017, once in July and another in September, after seven years of historically low rates. These two rate increases came against a backdrop of strong growth in the Canadian economy. Canadian gross domestic product increased for eight strong months before levelling off in July 2017. GDP figures for August are due to be released by Statistics Canada on Oct. 31, 2017.

Romana King
Romana King

Romana is an award-winning personal finance writer with an expertise in real estate. She is obsessed with the property marketplace and is the current Director of Content at Zolo.

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