BoC rate annoucement surprises industry

The Bank of Canada announced that the overnight rate would remain at 1 per cent, the 19th consecutive time the rate been kept stagnant.

The decision was expected by most analysts, as Carney’s commentary on Canada’s slowing economy has hinted that no rate hike is in the cards in the near future.

The revised projections for Canada’s economy will no doubt act as a caution for the housing market, as investors may have to wait longer than expected for an upturn. "If there were a sudden weakening in the Canadian housing sector, it could have sizable spill-over effects on other areas of the economy," warned the bank.

Senior Economist at BMO Capital Markets Sal Guatieri is surprised by the Bank’s revisions to the timing of the hotly-anticipated rate hike.
“It’s a little bit of a surprise that the bank appears to be pushing out its expectations of when it sees the need to raise interest rates,” he said. “Given the tone of the statement, it’s not surprising that the Canadian dollar would weaken on the statement because the market probably will push forward its outlook for interest rates, possibly into 2014.”

The economy slowed more than anticipated in the latter half of 2012, falling below the projections outlined by the Bank in the Monetary Policy Report (MPR) released in October, and is expected to continue at a “restrained” pace until the second half of 2014. The Bank revisited earlier projections for 2013, revising the 2.3 per cent growth estimate to 2 per cent.

Mark Carney is expected to address new numbers later today at a press conference alongside Bank of Canada Senior Deputy Governor Tiff Macklem. The Bank will announce the overnight rate target again on March 6, and provide a fully updated outlook for the economy and inflation in the new MPR released April 17.