BoC holds overnight lending rate

The Bank of Canada (BoC) released its regularly scheduled interest rate update on Sept. 9, announcing it would not change the overnight lending rate from 0.50 per cent. With the economy performing better than expected and a federal election in full swing, the BoC opted to leave things as they are and not make any changes for the time being.

In the previous interest rate announcement on July 15, the BoC cut the overnight lending rate by 25 basis points. It was the second change in just six months, echoing a 25 basis point cut in January. July’s announcement led to a flurry of activity; traffic to RateHub.ca spiked as consumers came in search of lower mortgage rates.

In today’s announcement, however, the BoC had a somewhat more positive outlook. A statement from the central bank said “the stimulative effects of previous monetary policy actions are working their way through the Canadian economy.” The BoC also cautioned that Canada’s economic future will be heavily influenced by factors beyond its control. Uncertainty in China and the growing economic strength of the United States were two major pressures cited by the Bank.

Attention is now shifting to the US Federal Reserve, which could potentially raise interest rates in that country as early as next week. Earlier this year, it seemed to be a foregone conclusion that the Fed would raise rates in September, but experts are now saying it could be later this year before they pull the trigger. It’s still seen as a matter of when – not if – rates will go up there, and when they do, it will be the first such increase since 2008.

The Bank of Canada has said it wouldn’t necessarily follow an American lead, but a U.S. rate hike would have implications on our economy, and would likely push the Canadian Dollar down even further relative to the U.S. greenback. By deferring any further changes to the overnight rate, the BoC has left itself breathing room to react to an American rate increase.

For the average Canadian, today’s announcement is generally good news. If you have a variable rate mortgage, your interest rate should stay the same for the time being. Even though the major banks didn’t pass along the entire discount from this year’s rate cuts, don’t expect them to use today as an opportunity to step up any competition.

The Bank of Canada’s next rate announcement is Oct. 21.

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