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Wednesday, September 8, 2010

Bank of Canada rises the overnight rate with 0.25% to 1%

Bank of Canada hikes rates for third time

September 8, 2010 | 09:09

Mortgage costs for many Canadians went up for the third time this year on Wednesday, with the Bank of Canada hiking its target for the overnight rate by a quarter point to 1%.

The bank rate is now 1.25% and the deposit rate 0.75%, the bank said in a statement. Echoing comments made in previous rate hike announcements, the central bank said any further hikes increases will need to be carefully considered in light of the “unusual uncertainty surrounding the outlook.”

Canada’s economy has cooled rapidly in recent months, leaving economists mixed as to whether Governor Mark Carney would up borrowing costs this time around. Most now expect him to pause in the tightening cycle until the economic recovery, particularly south of the border, gets on a firmer footing.

The bank said that the Canadian economy was softer in the second quarter than it had expected. However, business investment and consumer demand were in line with its forecasts.

Going forward the bank said it expects business investment to rise strongly and consumer demand to be solid.

The weak spot in the outlook for Canada is the U.S. economy, home to three quarters of the country’s exports.

“In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term,” it said.

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