You’ve heard it all before, Europe bad, China slowing and US crawling along.  With respect to Canada’s economy, the BOC is projecting a 2.1 percent growth this year, 2.3 percent next year a 2.4 per cent in 2014.

As a surprise to absolutely no one the Bank of Canada left the benchmark interest rate at 1% for the 25^th consecutive month.  Furthermore, BOC’s economic outlook for the next few years remains unchanged.  In other words not much has changed since the last announcement from the Bank of Canada.  Maybe there should only be announcement when there’s actually something to announce.  Given the repetitiveness of the announcements everyone is looking at language subtly for an indication that something might be different.  There was a twist or something new in this announcement in that the central bank will consider the state of household finances before increasing the target rate.

That’s interesting because the BOC expressed, yet again, their concern it has over household debt.  So if Canadians do not curb their insatiable appetite for debt (let’s be clear the debt refers to mortgages) the BOC may increase rates to curtail the said behaviour.  Is this simply a threat, and why now?  I think it’s rather apparent that market has slowed since the last changes to the mortgage rules in July, so was another shot across the bow necessary?  The answer appears to be yes.  The BOC also made it very clear that no cut to interest rates were being considered at this time.  There are things in life that don’t have to be said, and now “changes in BOC benchmark interest rates” falls into that category.

The BOC’s forecast for the Canadian and global economy is fairly consistent with their last statement.  You’ve heard it all before, Europe bad, China slowing and US crawling along.  With respect to Canada’s economy, the BOC is projecting a 2.1 percent growth this year, 2.3 percent next year a 2.4 per cent in 2014.  In other words no one should be planning a parade over the growth of our economy.  The BOC did indicate that “over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target.”  What monetary policy stimulus might be withdrawn?  It’s a cliffhanger, not as big as “who shot JR?” but a cliffhanger nevertheless (Those under 30 years of age, Google who’s JR Ewing).

The BOC announcement reminds me of what baseball legend Jogi Berra once said, “it’s like déjà vu all over again”.  A blog that I posted not long ago, Bank of Canada Still Locked With the US Fed, I opined that if you want to know what’s going to happen with our rates you don’t have to look any further than what the US Fed is doing. 

“The reverberations of QE3 will be felt here in Canada.  Bernanke has stated that the Fed is committed to leaving its target interest rate close to zero until 2015.  A few short months ago the prediction for a rate increase was 2014.  Clearly the Fed believes interest rates are too high in the US to encourage investment and mortgage borrowing.  I am not sure how enamored the Bank of Canada is with this decision.  Up until now the Bank of Canada has been in lock step with the US Fed.  Will they deviate from that?  I highly doubt it.  So, an overnight lending rate increase may have been pushed out for another 12 months in Canada.  That’s good news for consumers, especially for borrowers renewing their mortgages over the next 24 months.  The not so good news is that if you’re a first time home buyer, don’t expect the government to reverse the most recent changes to mortgage rules anytime soon”.

God, I hate being right.

Until next time,

Cheers.