The Bank of Canada (BoC) announced today that it would keep the overnight rate at 1.75%.
The Bank Rate is correspondingly 2% and the deposit rate is 1.5%. The BoC has maintained the current overnight rate since last October, when it was raised from 1.50%.
The rate hold was expected, but not a given. While 92% of economists expected Canada’s central bank to hold rates steady, some suggested that the BoC start to cut rates now due to expectations of a weakening economy. The Bank projects that the Canadian economy will grow by 1.5% this year, 1.7% in 2020 and 1.8% in 2021.
It’s not a question of whether the BoC will cut interest rates, but when that cut will take place. Now that rates have been held, expectations are that the rate will drop back to 1.5% at the next announcement.
There has also been speculation that the BoC would follow in the footsteps of the Federal Reserve, the U.S. central bank, which has cut its rate twice this year after not having done so in more than a decade. The Fed is announcing another interest rate decision today, and markets expect yet another .25% cut. It is unlikely to boost much investment, however, because of trade tax uncertainty.
“Ongoing trade conflicts and uncertainty are restraining business investment, trade, and global growth. A growing number of countries have responded with monetary and other policy measures to support their economies. Still, global growth is expected to slow to around 3 percent this year before edging up over the next two years. Canada has not been immune to these developments,” the BoC reports.
“Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.”
The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s policy interest rate.
Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.
The next interest rate announcement is December 4th.