Bank of Canada’s Interest Rate, and Predictions

It’s the Bank of Canada that more or less determines the interest rates you’ll be paying on your mortgage; so when they speak, we listen. On Tuesday of this week, the Bank announced that it will keep its overnight interest rate at 1%. While this wasn’t really huge news, given that the same announcements were also made in July and September, this time the Bank also made some observations about the Canadian economy, and what the country’s financial situation is going to look like for the next year or two.
Of course, one of the biggest impacts on the Canadian economy is the condition of other economies around teh globe. And it’s no secret that Europe is struggling, Greece has already gone under, and the U.S. isn’t looking so good either. And while Canada’s economy is doing pretty well and outlooks seem pretty good, it’s these global economies that the BoC says we should be worried about, as those are bound to have a direct impact on us. Foreign demand is expected to be down during the years of 2012, and possibly even 2013, and the strong Canadian dollar isn’t likely to have businesses seeing our country as the cheapest one to trade with. And we could need those foreign markets, and the traders within them.
Those unstable global economies are the exact reason why domestic business investment growth is slow too, with investors seeing a whole lot of risk and very little gain, if any at all. But it can’t all be blamed on foreign markets; domestic demand is down too from what was expected and household expenses are expected to go up. (No surprise there to Canadians who are already facing higher prices at the grocery stores and gas pumps.)
After reading BoC’s predictions, even tagged along with the announcement of the interest rate that will stay where it is, are Canadians to think that it’s all doom and gloom? And we can forget all that talk about how great our economy is doing? Well, not exactly. Yes, our economy is fairing much better than many of those around the globe. But yes, we may have been a bit more optimistic than realistic when talking about when we’d all be living our pre-recession lives again. Still, we’re doing okay. And even though they’ve had to push the date back a bit, the Bank of Canada is now predicting that our economy will be back to where it used to be by the end of 2013.