BoC Holds Prime Rate; What’s in Store for the Future?

To no one’s surprise, the Bank of Canada opted against an interest rate hike yesterday as it released its July statement. While alot has been made about the strong suggestions in the statement that a rate hike was imminent, there are some interesting points that suggest a more patient approach might be taken.
First of all, there are a few mentions of the slower than expected growth currently being experienced by the Americans. This is the single biggest reason why rate hikes could be postponed for a few months, far longer than expected earlier this year. Add to that any potential issues created by the debt ceiling issue and you have some reasons to be concerned about the buying power of our biggest export partner. The statement also includes good news/bad news with respect to Europe and Japan. While the core European economies are growing well, all of Europe will be dealing with the negative effects of austerity measures over the next few years. Similarly, while Japan has begun to rebound from the March earthquake/tsunami, its economy is still far from fully recovering.
The BoC also mentions the fact that strong growth in emerging markets will keep commodity prices up for the foreseeable future. This suggests that demand for the Canadian dollar will maintain or increase which would only be exacerbated by a rate hike and would obviously hurt the position of our exporters.
Finally, the BoC main job is to maintain inflation at target levels. While total inflation is at the high end of the target range of 1-3%, core inflation is right around the magic number of 2%. Moreover, it is believed that inflation is only temporarily elevated due to high energy prices, which are expected to ease soon.
The point is, while the BoC has indicated that the current, super-low interest rates must be increased in the near future, there are some important reasons to think that doing so is either unnecessary (inflation will achieve target levels without a rate hike) or potentially harmful to the economy (a rate hike would hurt exporters and could slow down our current recovery which, while moving in the right direction, could be derailed by global issues).
For consumers looking to bring down credit card debt, for instance, an extended period of low interest rates makes a second mortgage that much more affordable.