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Borrowing costs remain steady in Canada
June 12, 2012
The Bank of Canada kept its trend-setting lending rate at 1.25% during it June 5th meeting. It was the 14th consecutive policy meeting in which borrowing costs have been left unchanged, according to a release from the
Canadian Real Estate Association (CREA). While the text accompanying the announcement left the door open to future rate hikes, the language used was considerably less aggressive than in the previous announcement in April as the Bank sounded a cautious tone over the recent deterioration of the situation in Europe.
The announcement begins, “The outlook for global economic growth has weakened in recent weeks. Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions.”
The Bank also noted that while the US economy was continuing to expand, albeit modestly, emerging economies were slowing faster and a bit more broadly than expected. That more modest global momentum combined with heightened financial risk aversion has led to lower commodity prices, which is weighing on Canadian exports.
Canadian economic growth was slower than the Bank expected in the first quarter of the year, 1.9% compared to a projected 2.5%; however, underlying economic momentum remains in line with expectations. That said, the composition of growth has become less balanced. Specifically, housing activity has been stronger than the Bank had been expecting, and despite external risks, business and household confidence has remained resilient.
The announcement ended by reiterating that, to the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, the possibility of a rate hike was not completely off the table, but that the timing and degree of any such action would depend heavily upon how current heightened downside risks play out in the months ahead.
ICREA
