Bank of Canada Holds Steady on Key Interest Rate
This morning, The Bank of Canada decided to leave its rate unchanged at 4.25%. The Bank said the current rate of inflation is higher than previously expected. However, the bank expects the core inflation will cool to 2% target but expects that to happen by the end of the year.
As far as economic growth is concerned, the bank expects the GDP growth to be around 2.2% in 2007 and 2.7% in 2008. Domestic demand is going to be the main reason for growth as the slow down in U.S economy will decrease exports.
In its announcement, the Bank assessed inflationary risks to the Canadian economy and stated, "the upside risk to the Bank's inflation projection is that the recent strength of inflation could be more persistent than projected. The downside risk continues to come from the possibility of a more pronounced slowdown in the U.S. economy. The Bank continues to judge that the risks to its inflation projection are roughly balanced, although there is now a slight tilt to the upside."
This decision means that the prime lending rate offered by most lending institutions in Canada will stay put, as will rates on variable mortgages. The Bank’s decision today does not affect the rates for new fixed mortgages, the pricing of which is determined by trading in the Canadian bond markets.