The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.  The global economy is still in a recession but there are signs that economic activity has begun to expand in many countries in response to the fiscal and monetary policies that Central Banks have introduced in order to stabilize the global financial system.  The Bank of Canada projects that the Canadian economy will contract by 2.3% in 2009 and then grow by 3.0% in 2010 and 3.5% in 2011.
What is pertinent about the Bank of Canada’s announcement of today is that they reiterated their conditional commitment to hold the current policy rate of the overnight money at 0.25% till the end of the second quarter of 2010.  This bodes well for rates remaining low over this period.  It is also significant that inflation has dropped by 0.30% in June and the Bank of Canada sees inflation dropping even further.  This is all good for rates remaining low.  Inflation is expected to return to the 2.00% target in the second quarter of 2011.
So, this announcement really speaks to the overnight lending rate (i.e. the rate that the Bank of Canada lends to Chartered Banks) and this affects the prime lending rate.  You may have noticed that the fixed rate mortgages ramped-up quickly and aggressively in the recent past.  The fixed rates are funded on the bond market (totally different to the money market) and this market can be quite volatile.  In the last 10 days we have seen this market settle down a bit and the fixed rates have retreated a little.  On the variable rate scenario, we have also seen some cost changes over the last 14 days: the premiums (remember the days when variable rates were offered at a discount to Prime - and that was not too long ago) have started decreasing as liquidity returns to the market.  This trend will continue over time.
The next Bank of Canada announcement is scheduled for September 10, 2009.