Factors Leading to the Bank of Canada’s Decision To Leave Prime Rate Untouched

March 1, 2011 § Leave a comment

With every Bank of Canada Rate Announcement meeting, variable rate mortgage holders can be seen biting their nails with anticipation of a rate hike. For the fourth consecutive meeting, they have held the key lending rate at 1%. This in turn means that prime rate remains unchanged at 3%.

Canadian economists and mortgage rate speculators alike were expecting  a pass on the rate hike considering the global factors that have influence over our economic policy.

Some of the key factors in this decision are global inflationary trends and unrest in the Middle East, causing concern for rising oil prices.

The bank’s views on the strong Canadian dollar will be closely watched – and delicately tampered with as it runs-up to a near three-year high against the U.S. dollar. Considering the already strong dollar, a rate hike increase may discourage our U.S. counterpart to continue importing at the same rate.

Stretched household balance sheets that restrain consumption growth and residential investment are another deterrent for a rate hike at this point in time, but it is being said that there is expected to be a rate hike before the first half of the year is over.

For now, variable rate mortgage holders can breathe easy. When there is an eventual hike, it will more than likely not exceed a quarter-percent.

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