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.

Even with the somewhat stronger than expected global economic growth and whilst the extra-ordinary stimulus from monetary and fiscal policies continues to support and aid many countries the recovery in the major industrialised countries is still expected to be somewhat subdued. There is still considerable uncertainty as to the durability of the world-wide economic recovery.

In Canada, however, the economic recovery is proceeding at a quicker pace with GDP expected to be around 3.70% for 2010 and then slowing to 3.10% in 2011 and 1.90% in 2012. The Bank anticipates no problems on the inflation front and sees the Total CPI inflation to be slightly above the 2.00% target over the coming year but returning to below the target of 2.00% in the second part of 2010. This is rather significant for rates: their upward movement would be slowed down by this.

Given the afore-going, the Bank has decided to remove their conditional commitment of freezing the overnight lending rate t 0.25% and will continue to watch the economic growth (both locally and globally) and inflationary pressures before deciding on the timing and the extent of reducing their monetary stimulus i.e. increasing the overnight lending rate.

Note, this is not all doom and gloom. The bond market has reacted rather strongly to the expectation that the Bank will increase the overnight lending rate (starting in July) and this has led to a rather significant increase in bond rates over the last 2 weeks i.e. the fixed rate mortgages have increased. However, overall the rates are still low. The next scheduled date for the announcement of the overnight lending rate is June 1, 2010.