The Bank of Canada has kept its key interest rate unchanged at 1%.
But increased concern about Canada’s low inflation rate has the country’s central bank talking about a possible rate cut in the future.
The bank’s target inflation is two per cent, with a general range of between one and three per cent. In the last year, Canada’s inflation rate has been consistently below that. In November, inflation was 0.9 per cent, the seventh time in 13 months that inflation was below the general range.
The Bank said in a news release issued January 22 that it expected inflation to return to the two-per-cent range in about two years.
Another concern is what the bank calls “household imbalance,” a reference to the high debt levels held by Canadians. But the bank expects “a soft landing in the housing market and a stabilization of household indebtedness relative to income,” the release said.
“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,” the bank said. “At the same time, risks associated with elevated household imbalances have not materially changed. Weighing these considerations, the bank … has decided to maintain the target for the overnight rate at 1%.”
On what the future holds, the bank referred to both the timing and direction of a possible rate change.
“The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks,” the bank said.
The bank last raised rates in September 8, 2010.
The next rate decision is scheduled for March 5.
