For the first time in more than a year, the Bank of Canada has decided not to raise its key interest rate.
The central bank decided Wednesday morning to keep the rate at 4.5 per cent. The hold was widely expected by economists. Before today, there have been eight consecutive increases which saw the key rate rise by 4.25 per cent.
"They feel that the moves that they've already made have curtailed inflation," said Aaron Ruston, a financial advisor with Purposed Financial in Moose Jaw. "What inflation does, is it works insidiously through the system. For instance, you'll find oil prices increasing as an example and then interest rates start to rise but then as trucking and shipping costs start to rise, other steps down the line start to increase in value. Really what this does, by not making any moves and staying static on it, they're saying 'OK, we're happy with it to this point, but don't think that in the future we couldn't bump it up again'."
Ruston says the U.S. is facing very similar questions to what we are. The U.S. central bank rate is currently at 4.75 per cent
"They're facing escalating prices. They're increasing interest rates, they've had eight moves just like we have over the last year. They're having people face too, the affordability of homes, financing things. They've fallen a bit into the same trap that we have in a way. When interest rates were so low, and we saw escalating values on homes and equity positions like that, people were going out and borrowing and they were borrowing with variable interest rates and now that's catching up with them...They're actually in better shape than we are. We always talk about the U.S. being so out of control, when really Canada has higher debt per person really owing than the U.S. does."
He adds that while today's decision is good news for borrowers, it also provides another opportunity to reevaluate your overall financial planning.
"Sometimes the best investment you can make is paying down nondeductible interest on your debts. Do an analysis. Come on in, we'll do an analysis as an example. Is it better to invest? Is it better to pay down your debt. Good right now, but also provides us one more opportunity to really attack that debt that is possibly increased over the last number of months."
The Bank of Canada’s next interest rate decision is on April 12.