Interest Rate

  • Previous vote 12/4
    Held at 1.0% (statement)
  • Latest vote 1/22/2014
    Held at 1.0% (statement)
  • Next meeting: 3/5
boc_09042013

Headlines


Assessment

Jan. 22, 2014 – The BoC remains neutral, holding its overnight rate at 1%, the bank rate at 1.25%, and the deposit rate at 0.75%. Growth is expected to pick up from 2.9% in 2013 to 3.4% in 2014 and 3.7% in 2015. However, the downside risk to inflation is growing in the eyes of the bank. This concern is pushing the tone of the BoC from neutral to slightly dovish. Some media outlets have even inferred that the bank is opening the door to rate cut. The bank stated:

“Although the fundamental drivers of growth and future inflation appear to be strengthening, inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance. At the same time, risks associated with elevated household imbalances have not materially changed. Weighing these considerations, the Bank judges that the balance of risks remains within the zone articulated in October, and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks.” – Excerpt from the BoC policy statement.

Dec. 4 – The BoC maintained its target for the overnight rate at 1%, the bank rate at 1.25%, and the deposit rate at 0.75%. Nothing new here. The bank has moved from hawkish to neutral. There was also an increased downside risk to inflation, which removes the tone further from hawkish.

Oct. 23 – The BoC held its overnight rate at 1.00%, bank rate at 1.25%, and deposit rate at 0.75%. There was no mention of a need or consideration of a rate increase, which was in the language throughout the year. Here are some of the higlights from the MPR Summary:

  • The global economy is expected to expand modestly in 2013, although the composition of growth is now slightly less favourable for Canada.
  • In Canada, the Bank expects that a better balance between domestic and foreign demand will be achieved over time and that economic growth will be come more self-sustainin g. But this will take longer than previously projected.
  • The Bank projects that the Canadian economy will grow by 1.6 per cent in 2013, 2.3 per cent in 2014, and 2.6 per cent in 2015, reaching full capacity around the end of 2015.
  • Inflation remains subdued. With well-anchored expectations, both core and total CPI inflation are projected to return slowly to 2 per cent around the end of 2015.

 

Learn about the Bank of Canada

Mandate: There are 4 areas of focus for the Bank of Canada. The BoC works very closely with the government.

-          Monetary policy to control inflation: The bank targets 2% annual inflation and does this by raising or lowering the target for the overnight rate, which is the interest rate at which financial institutions can borrow and lend one-day or overnight funds among them.

-          Currency/Bank Notes: The BoC also designs, produces and distributes Canada’s bank notes.

-          Financial system: To maintain stability of Canada’s financial system, the BoC provides liquidity to financial institutions, and acts as a “lender of the last resort”. The central bank also participates in the foreign exchange market, manages government securities, and oversees transactions between banks and financial institutions.

-          Funds management/Fiscal agent: The BoC manages the government’s cash flow, and its foreign exchange reserves. It also advices the government on its management of public debt as well as retail debt.

The governor of the bank, who is in charge of its operations and cooperation with the government, is appointed by the Bank’s Board of Directors.stephen poloz

Members (Board of Directors): 

The board of directors is composed of the governor, the senior deputy governor, and 12 independent directors appointed to 3-year renewable terms by the governor in council (from the Cabinet). The Deputy Minister of Finance is the Ex Officio member of the Board.

Stephen S. Poloz became the new BoC governor in May 2013.

Tim Mackelm – Senior Deputy Governor

12 Independent Directors: William Black (Halifax, Nova Scotia), Phyllis Clark (Edmonton, Alberta), Phillip Deck (Toronto, Ontario), Douglas Emsley (Regina, Saskatchewan), Jock Finlayson (Vancouver, British Columbia), Brian Henley (St. John’s, Newfoundland and Labrador), Daniel Johnson (Montreal, Quebec), Claire M.C. Kennedy (Toronto, Ontario), Derek D. Key (Summerside, Prince Edward Island), David Laidley (Montreal, Quebec), Leo Ledohowski (Winnipeg, Manitoba), Richard McGaw (Fredericton, New Brunswick),

Member Ex Officio: Michael Horgan (Deputy Minister of Finance)

Source: BoC