Bank of Canada Leaves Rates Untouched

Article: 


http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/04/bank-of-canada-leaves-rates-unchanged-yet-again.html#more

Summary:

This article states that the Bank of Canada is keeping its key lending rate at 1.00%.  This has been the fifth consecutive meeting and the Bank of Canada has definitely surprised many.  The current prime rate is 3.00%.  This is good news for everyone with a mortgage.   Many people foresee that bank increasing its bank rate by the time summer rolls around.  Financial markets and major economists predict 2011’s first bank rate hike to happen on July 19^th. Other forecasts state that the hike will be pushed back to September or October. 

Connections:

This article is related to Chapter 7 because it talks about chartered banks and the bank rate.  A chartered bank is the term used to describe a financial institution operating under the authority of Parliament that accepts deposits and lends money to businesses, government, and households.  The chartered banks in this article are borrowing money from the Bank of Canada.  The bank rate is the rate of interest paid by chartered banks on money borrowed from the Bank of Canada.  The key lending rate is currently lower than the current prime rate. 

Reflections: 

I think that mortgage holders must be extremely happy with the current lending rate at a low of 1.00%.  With a low lending rate comes a low prime rate.  With both being quite low, interest rates on savings accounts would without a doubt decrease. This would cause people to spend more compared to save more because they would be getting less interest on their money.  With all the spending in the economy, there would be a decrease in the level of demand-deficient unemployment.  The persistent strength of the Canadian dollar will certainly help to decrease inflation and in the long run, help restore the economy to capacity by the middle of 2012.