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Bank of Canada Leaves Rate Unchanged

In a move that was expected, the Bank of Canada left the overnight lending rate unchanged at 2.5%. The economy is doing well led by solid consumer spending and employment numbers, which would normally spark inflation concerns at the BOC and the possibility of an upward rate trend. But while the loonie dropped on the news, it's overall strength and 30% surge in value since 2003 serves as the prime impetus for the Bank of Canada to continue toe a cautious line when it comes to raising rates.

"The Bank of Canada sees a much bigger hit from the Canadian dollar and is likely to stay on hold much longer than anyone anticipated," said John Johnston, chief strategist at The Harbour Group in Toronto, a unit of RBC Dominion Securities.

They sent a very clear message that their primary concern is the impact of the Canadian dollar," said Craig Alexander, deputy chief economist at TD Bank Financial Group in Toronto. "It doesn't look like the Canadian economy is facing any dire economic scenario, so the Bank of Canada is taking a prudent decision in holding the line on rates.

"The housing market is going to have another good year," Geoff Mackey, chief executive of Superior Plus Income Fund in Calgary, said Jan. 7. Superior purchased Winroc, a distributor of wall and ceiling construction products last June. - Bloomberg

Bank of Canada Keeps Rate at 2.5%, Cites Dollar Drag [Bloomberg]
Logo: [Bank of Canada]

January 26, 2005 in Money Matters | Permalink