Bank of Canada hints at rate hike but stands pat for now
Central bank holds rate steady at 1% again
For the 16th consecutive policy meeting, the Bank of Canada has decided to keep its benchmark target for the overnight rate steady at one per cent.
The world's economy is expanding at roughly the pace Canada's central bank was anticipating, the bank said Wednesday. Europe's economy is in crisis and the U.S. economy is expanding at a gradual pace — two factors putting a damper on Canada's prospects.
Despite those headwinds, the bank said it expects Canada's economy to pick up the pace next year. But not, apparently, enough to compel the bank to raise its target for the overnight rate — yet.
"To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate," the bank said.
That's the central bank's way of saying it is leaning toward raising rates slightly, whenever it deems the time is appropriate.
The bank said Canadian consumer debt levels continue to be a "burden," but described the level of business investment — a key sign that the private sector is spending and investing to grow the economy — as "solid."
Low rates help stimulate Canada's economy. But cheap borrowing has compelled Canadians to take on more debt, which means the central bank must walk a fine line.
The Royal Bank of Canada said that to a certain extent, the central bank's hands are tied in terms of being able to raise rates to more normal levels.
"Until there is clear evidence that policymakers outside of Canada have put in place programs that are sufficient to reverse these risks, Canadian interest rates will remain low to counter the negative fall-out on the domestic economy," RBC said in a commentary following the central bank's rate decision.
The central bank's rate is the basis for the rates consumers get from commercial banks for borrowing and saving.
The bank last hiked its rate in September 2010, raising it to one per cent from 0.75. It has remained there ever since.
The bank's next policy meeting is scheduled for Oct. 23.