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Bank of Canada keeps interest rate the same

Bank of Canada keeps interest rate the same

Posted on: 7/11/2019 | Author: ATB Financial's Economics + Research Team

​​Canada’s central bank announced yesterday that it is leaving its key policy interest rate (a.k.a. target for the overnight rate) where it is for now. The last time the Bank increased the rate was in October of last year when it went from 1.5 per cent to its current level of 1.75 per cent. The next opportunity for a rate change is September 4.

The key policy rate is important because it ”serves as the benchmark that banks and other financial institutions use to set interest rates for consumer loans, mortgages and other forms of lending.”

Borrowers should be pleased that the rate did not go up while savers will have to look elsewhere for higher returns.

In terms of what the Bank’s decision says about the Canadian economy, the general message is one of caution in the face of ongoing and potential trade conflicts. Even though the Canadian economy is growing—in part because of increased oil production in Alberta—and the national unemployment rate is low, the Bank is concerned that the negative effects of tariffs and other barriers to free trade will dampen growth both globally and here at home.

As for what we can expect to happen this fall, a lot depends on what the U.S. Federal Reserve decides to do. If the Fed cuts its rate, this could tip the scale toward a cut by the Bank of Canada as would a greater-than-expected slowing of the global economy or a deterioration of the domestic outlook.

We can’t say for sure, but all things considered, no change or a cut are more likely scenarios in the near-term than a rate increase.

Interest rates July 2019, graph

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