The Bank of Canada left its interest unchanged today at 1%. This means that Bank Prime rate will remain unchanged at 3%. This is the interest rate that variable rate mortgages and lines of credit are measured against. This interest rate has remained unchanged since September 2010. This is the longest period of unchanged interest rates since the mid-1950s.
Since April, the Bank has been indicating that rising rates are coming soon. The low rate over the last two years has given significant stimulus to our economy and the Bank has indicated that some modest withdrawal of its considerable monetary policy stimulus will be necessary soon to keep inflation in check.
The Bank’s target inflation rate is 2%. In the last few months inflation has been less than expected, but the Bank expects inflation to return to the 2% target in the next 12 months. This means rates will increase in advance of that to stop the inflation at the target.
Our best guess on when interest rates will start to increase is mid-spring 2013 when Canada gets closer to the 2% inflation target; but only time will tell.