The Bank of Canada has announced today that it is raising its overnight rate by 25 basis points. That changes the overnight rate from 0.75% to 1%. This change in the overnight rate has a direct effect on the prime lending rate, which will now jump from 2.75% to 3.00%.
In recent weeks, many reports have come out projecting smaller than projected growth, although many top economists still believed that the Bank of Canada would increase the key rate. As outlined in the press release "the global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies".
Future forecasts for growth in Canada expect growth to be solid and business investment is expected to rise. From the press release, the Bank of Canada believes that the economic recovery will be more gradual than the previous Monetary Policy Report, which was released in July 2010, mainly in part due to the weakness in the United States.
Even amidst the report of slowing economic growth, the Bank of Canada determined that allowing a 25 basis point increase would still allow for stimulation, even though there may be some financial tightening. The increase in the prime rate is one key way that the Bank of Canada tries to control the inflation rate within the country, in order for it to stay around 2%.
This rate increase of 25 basis points is the third consecutive rate increase since June 1st, 2010. Canada was the first from the Group of Seven to begin increasing interest rates, and previous publications by the Bank of Canada predicted Canada to be leading the way in terms of the global economic recovery.
However, the Bank of Canada heeded in saying "any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook". Most economists have now tightened their forecasts for future rate increases.
Since the rate hike announcement at the policy meeting, the Canadian dollar has increased 1.09 cents, sitting at 0.9650 cents US by midday Wednesday. The Toronto Stock Exchange also felt some gains of about 0.2%.
The next scheduled date for the Bank of Canada to announce the overnight rate is scheduled for October 19, and an updated Monetary Policy Report will be released on October 20, 2010.
Current home owners with a variable mortgage are most likely wondering what this all means in terms of their existing loan. Variable rate mortgages are based on Prime lending rate minus or plus a specific amount.Contact your Accredited Mortgage Professional, Mortgage Broker today to find out more about your available mortgage solutions.
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