19 October 2010

Here are some of the main Bank’s commentaries concerning today’s meeting:
•    According to the BoC “the United States’ recovery goes a bit slower than it was expected”.
•    There is certain possibility of  “a slower and more difficult global recovery”.
•    “Slow consumption and housing activity is expected in Canada”.
•    “Canadian inflation turned out to be below the Bank’s July forecasts”.
•    “The inflation forecasts have been revised – total CPI and core inflation are expected to converge to 2% by the end of 2012”.
•    Due to 1% overnight target rate “considerable monetary stimulus remains unchanged”.
In addition to it, the Bank of Canada revised its growth forecasts:
•    2010 growth cut to 3.0% from 3.5%
•    2011 growth cut to 2.3% from 2.9%
•    2012 growth raised to 2.6% from 2.2%
In other words, the situation is a bit worse than the Bank expected. The negative tone of the report cut many economists by surprise.
But the main thing is that the BoC doesn’t see any inflation threat till the end of 2012. And if it’s true, the short-term and variable-rate mortgages can become the most profitable in the next few years. Anyway, we should always remember that the BoC can change these forecasts any time.
The next interest rate meeting will be on December 7. Today most analysts not only expect no rate hikes at that meeting, but predict BoC can be on put until March 2011.