As anticipated, in keeping with its pledge to hold rates low until mid-2010, the Bank of Canada kept the benchmark over-night lending rate at 0.25 per cent. The bank also released its semi-annual Financial System Review that outlines developments and analysis of Canada’s financial system.
According to the report, while the past several months show that the economy is improving, of the five factors that can be a major detriment to economic recovery, the only one that the Bank of Canada singled out as worsening was household debt.
The report provided two scenarios for what might happen to interest rates in the next three years. The first being that the benchmark rate would jump to 3.2 per cent by mid-2012 and the second assumed the benchmark rate would increase to 4.5 per cent.
Both of these scenarios would put a record number of home owners with large mortgages in serious financial danger. Should this happen, this would severely increase the number of personal bankruptcies that might risk derailing Canada’s economic recovery.
