The Bank of Canada has opted to freeze rates for the 11th consecutive time, maintaining the 1.0% interest rate this morning.
The stay is consistent with Governor Mark Carney’s statements from October that forecasted no changes for the foreseeable future. The current Chairman of the Financial Stability Board insists that the Bank will remain flexible, in light of world and domestic future developments (specifically the never-ending European debt and banking crisis).
Prior to today’s announcement, 10 of 11 senior economists from businesses and universities across the country called for the Bank of Canada to stand firm with the rate freeze. Grouped together by the C.D. Howe Institute, nine of these economic experts further forecasted that the Bank would avoid raising the rate again at the next setting on January 17.
How Long Will it Last?
Since bumping the rate from 0.75% to 1.0% in September of 2010, analysts have been playing the guessing game trying to estimate how long the freeze will last. Some anticipate that the rate will stay at 1.0% through the third quarter, while others project it will last until deep into to 2013. Some even feel that a rate drop may be in the forecast, due to Asia’s slowed growth and the shaken European and American financial systems.
On the other hand, high consumer debt and high housing prices are still cause for concern. Even so, the majority of the C.D. Howe Institute economic think tank team remains confident that the rate will stay at 1.0% for the duration of next year; only three members would have the rate raised.
Major financial strategists agree with this forecast as previously noted risks to Canada’s economy become more and more apparent. Worsening funding market pressure, the European crisis, weak demand from the U.S, and slowing Chinese markets are all prominent factors in the stay.
How’s Our Economy Holding Up?
Job growth, while small, is up following the huge pullback in September. Exports are also on the up. And while Statistics Canada recently reported booming third-quarter numbers (up 3.5%, far above the Bank’s estimated 2.0%) most of this growth is can be contributed to a rebound from temporary factors that hampered growth during Q2.
While analysts believe that the freeze will continue, they all agree that it’s not a permanent solution. As Dr. Sherry Cooper, Chief Economist for BMO Financial Group stated on December 2, “it does not address the underlying fundamental problems.” She insists that politices of a greater fiscal integration are necessary for a stable recovery.