Tuesday, June 10, 2008

No rate cuts by Bank of Canada

Variable-rate mortgage holders were slightly disappointed this morning. The Bank of Canada surprised many Bay Street economists by not lowering it's key interest rate. As recently as Sunday, 12 of 12 primary securities dealers had thought a 1/4% cut was in the cards. It once again shows how hard it is to predict rate direction and the Bank of Canada's intentions. Perhaps there was some herd mentality in those forecasts as well.

The Bank of Canada said:

  • The risk of inflation has "shifted slightly to the upside."
  • The Bank projects that "economic growth will pick up this year and accelerate in 2009."
  • "If current levels of energy prices persist, total CPI inflation will rise above 3 per cent later this year."

By 9:15am, Canada's 5-year bond yield had soared to 3.57%. It hasn't been this high since January. That could slow or halt the decline in fixed mortgage rates as well.

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