Bank of Canada to keep Higher Rate Bias

Mark Carney, the Governor of Bank of Canada, will continue not to raise the interest rates, as he feels that the country’s economic growth will see a rise in 2013. There have been temporary disruptions because of the weak global demand and less energy output for Canada this year, but, Carney hopes that the situation will take a better turn next year. The benchmark rate on overnight loans between the Canadian Commercial banks remained at 1% and it has been at the same level for the last 2 years. Carney also stated that he hopes to bring the inflation to 2% target over the next 1 year.

Derek Holt, the Vice President of Economics for Scotiabank stated that the policy makers are not going to raise rates for a long period of time. He also added that the Canadian Government doesn’t want investors to think that they will return to rate cuts. Incidentally, Central Bank of Canada is heavily depending on the business investment and consumption to surge the 11th largest economy of this world. 

Canadian Dollar has increased against USD and is currently priced at 99.27 cents per USD. On the other hand, the 5-year Canadian Government Bond yields experienced a fall of single basis point and are at 1.27% currently.

According to many analysts, Carney won’t be able to visualize the expected growth before June, 2013, as he will become the Bank of England Governor after that time. Hence, till that time, the rates are most likely not going to be increased. Incidentally, last week, the Statistics Canada reported that the economic expansion slowed down to 0.6% in the 3rd quarter of 2012. It also stated that the exports and business investments both have seen the fastest rate of fall since the mid-2009, when the country experienced the last recession.

Incidentally, Central Bank of Canada is the only central bank which is showing a bias to increase the borrowing costs. As far as others are concerned, they have added stimulus in 2012 to boost the overall growth. For example, both European Central Bank and US Federal Reserve have decided to purchase assets. On the other hand, the exports will still be kind of restrained because the Canadian Dollar will continue to be supported by the spillovers from global monetary policy and safe haven flows.