Yesterday the BOC announced no change to the rates. Here is what my Investment Advisor James Teare had to say:
Quite simply the Bank of Canada is caught in no man's land in terms of where we are economically.
The Canadian economy has been relatively buoyant - real estate continues to move along, demand for our resources has been a key driver of the world-wide economic recovery (and our economic growth)...all good things that are driving economic growth and this is why the forecast calls for rising interest rates. The fact that we have such low rates isn't going to cause rates to rise, economic expansion will cause rates to rise to restrain that growth.
Now, here is where the problem lies - some of our economic counterparts have not progressed at the same pace we have economically and being a global economy, this creates a natural drag on our growth (meaning that actual rate action may or may not be needed) in the short-term.
The forecast has shifted slightly - whereas previously the thought was that rate hikes would be slow and methodical (inline with the expectation that the recovery would be slow and bumpy) what we may end up with is a period of flat rates followed by a burst of increases in succession. Economically our boat has left the dock but it hasn't been untied...when that rope breaks (because other parts of the world start to pick up steam) we could see those rate hikes come in a rush in the latter part of 2011 (this is based on what we see now so of course this could be pushed forward or backward depending on what actually transpires over the coming months).
Thus as far as retail lending rates, they will mirror the expectations for the broader picture. Those short-term rates that are attached to a variable mortgage may not move much in the short-term but that doesn't mean that longer-term rates won't start to move on their own ahead of time. Markets and rates work in anticipation of the future - if the picture starts to become more clear about direction, those longer term rates may start to move even if short-term rates haven't yet.