On January 23rd, 2013, Bank of Canada is going to announce its decision on target overnight lending rate (effective till 6th March). The rate has been sitting at 1% for a long time. Currently there is no indication that the bank will make a move anytime soon.
Financial markets are divided, on – whether or not the bank will take an ascending step late this year.
Most of the experts are not expecting any change this week.
In the long run there is no sure call if the bank will take the rate up or down. The factors – those influence the decision – are not under its control.
As of now, November inflation data showed a tame 0.8% total Consumer Price Index and a 1.2% core CPI. Target for both have been 2%.
The bank did not show any willingness to cut the target rate down but there is a major drawback of that inaction. Pensions are generally inflation adjusted and keeping the inflation lower than the target will substantially reduce the dollar amount increase of pensions. That obviously will save our treasury a lot of money but food and shelter prices are not going down anytime soon.
Citing big personal debt due to low interest rate – BoC can only travel a limited distance with its constant target rate.
Over time there will be pressure on the bank to take action otherwise – if the economy does not improve soon. We think that the bank is only hoping that Canadian economy will start producing higher GDP numbers by that time.
Only time will tell rest of the the tale.
A report from Reuters says that the December inflation (CPI) went barely above 1% and dealers are forecasting no rate hike till end of 2013 or early 2014.