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Bank Holds Rates! … For Now

The Bank of Canada announced yesterday the target for the overnight rate will be held at 1/4 percent.

The bank commented that “global economic recovery is under way, supported by continued improvements in financial conditions and stronger domestic demand growth in many emerging-market economies.”

While the outlook appears strong for 2010 and 2011, the recovery still relies on the “exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.”

Higher Interest Rates Down The Road?

Inflation has been steady. Inflation numbers released this morning showed that inflation has been relatively steady at 1.3 percent, which was below expectations. Unless the CPI rises considerably in the near term, it is unlikely we will see interest rates rise.

It is important to realize that while central bank rates are at record lows, they are near the bottom with only one way to go – up. The question is when will interest rates rise and by how much?

When interest rates rise again, those who are at their spending capacity may suffer and we may see another round of bankruptcies as lines of credit and mortgage rates increase.