Bank Of Canada, Overnight Rate Target Announcement

Source, Bank of Canada, and TREB Market Analysis Dept.-Jason Mercer

Summary: The Bank of Canada decided to leave its target for overnight lending rate at 0.25 per cent, and reiterated its "conditional" commitment to keep the rate at this level until end of June, 2010. The overnight lending rate is the rate at which major participants in the money market borrow and lend funds to each other for one day. Other benchmark rates like the Prime Rate generally track the up and down movements of the overnight rate.

Analysis: The Bank of Canada acknowledged that economic activity in Canada has been stronger than forecast in its January Monetary Policy Report (MPR), with core inflation rate higher. In past releases, the Bank suggested that risks to its outlook for consumer price inflation were weighted to the downside. The view is that interest rates will be trending upward in the second half of 2010, as the target goal is to keep consumer price inflation near 2% as economic recovery takes hold. The argument is that if interest rates remain as is for too long, consumer spending would push price growth (inflation) beyond the Bank's target.

No doubt this will create a more balanced buyer's and seller's housing market.