Bank prime is now at 2.50%. Whats lurking?

Bank of Canada Announcement

Well it finally happened, the Bank of Canada raised it's rate by 1/4% this morning. As long as economic conditions continue as they have been recently and inflation stays in check, this is the start of an upward trend with them.

With Canadian GDP growth at 6.1% in the most recent quarter – the most robust we have seen in years – what concern is there? Lots. Our largest trading partner, the US, risks heading in to a double-dip recession. Europe and the PIIGS. A China slowdown. Potential nuclear war commencing from Korea or Iran. The list goes on and on. Yes, Canada is in an enviable position, but how long will this last if other areas suffer?

The Bank of Canada’s last paragraph in the announcement speaks as to the uncertainty in the markets. They are acknowledging that they will be cautious on more rate increases until they see more indicators from around the world.

"Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments."

OTTAWA - The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal operating band of 50 basis points for the overnight rate.

Bank prime is now at 2.50%.

The next scheduled meeting for interest rate policy is on July 20th, 2010

Impact on Bonds: Negative
Impact on Equities: Positive/Neutral
Impact on the Canadian Dollar: Positive (upward)

Saverio Manzo
www.saveriomanzo.com
http://saveriomanzo.blogspot.com/