Bank of Canada Holds Key Rate Steady  

The Bank of Canada announced this morning that it is leaving its key interest rate unchanged, but signaled that it might begin raising interest rates in the coming months.  

The Bank stated that with recent improvements in the economic outlook, the need for extraordinary policies such as its commitment to keep its key target rate at the lowest possible level “is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus.”  The central bank noted that the economic recovery in Canada is “proceeding somewhat more rapidly” than it had predicted in January, and now forecasts that “the economy will grow by 3.7 per cent in 2010 before slowing to 3.1 per cent in 2011 and 1.9 per cent in 2012.”  However the bank also counted the strong Canadian dollar, poor Canadian productivity and low demand in the US as drags on the economy.  

Pricing for loans that are typically linked to a lender’s prime rate (such as variable-rate mortgages, variable-rate credit cards) is expected to remain unchanged in the wake of today’s announcement.  Pricing for fixed-rate mortgages is not directly affected by the Bank’s key target rate.