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|Bank of Canada holds rate||| Print ||
|Written by Hannah Vanderkooy|
|Tuesday, 25 October 2011 10:56|
The Bank of Canada announced they would be keeping the overnight rate at one percent on Tuesday.
The overnight rate determines the rate commercial banks borrow money from the Bank of Canada. The banks change their prime rate to correspond with the overnight rate and use the prime rate as a base to set their deposit and lending rates.
The Bank of Canada said they decided to keep the rate the same because of the volatility in the global markets.
“They decided to put a hold on it because of the fact that there are other countries, like Europe and U.S that still look like they are struggling economically,” Alan Dustin, Investment Advisor at DUCA Financial Services told thedailyplanet.com.
The Canadian economy has slowed since July, and the Bank of Canada expects growth to remain stagnant into the middle of next year.
Keeping the bank rate low will continue to encourage stimulation to the economy, as companies will continue to invest in their business.
“It is really just to keep the economy as stimulated as we possibly can right now,” said Dustin.
The overnight rate parallels the direction that the Bank of Canada would like the economy to go. Leaving the rate the same keeps the economy moving on a consistent track.
“If they lower the interest rate that means that there will be more money put into the system and that will cause inflation,” said Richard Kingston, program director at Humber’s Financial Services program. “If they raise the rate, it will contract the economy and that could lead to increased unemployment.”
The immobility in the overnight rate shows that the Bank of Canada is projecting a slow but steady economy.
“When they leave rates the same they want the economy to keep going the way it is as opposed to either raising or tightening the money supply,” said Kingston.
Although growth is slow, the Bank of Canada said they expect the Canadian economy to return to its full capacity by 2013.
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