Today the Bank of Canada (the Bank) released its highly anticipated announcement regarding the overnight interest rate (the Rate). The announcement can be found in its entirety here. After previous successive Rate increases this past summer (as we reported on here), the Bank decided to maintain a steady course by keeping the Rate constant at 1 per cent, indicating a measure of return to normalcy. Apart from successive increases this past summer on the strength of the overall economy, the Rate had otherwise remained unchanged for the preceding seven years.
The broad implications of the decision to maintain status quo remain unclear, but the impact on M&A activity and deal-making in particular will likely be positive. By maintaining the current Rate, and declining to increase it further, investment activity should receive a boost. Though the Rate is just one factor to consider within the context of the broader economic landscape, on balance, and to the extent that deals are contingent on the cost of borrowing, investment activity may enjoy an uptick.
The Bank’s announcement was also accompanied by a full-scale Monetary Policy Report (MPR) outlining the Bank’s outlook for the economy and inflation, which can be found here. Of particular note, projections for Canadian economic growth, as a measure of real gross domestic product, have been increased to 3.1 per cent for 2017, to 2.1 per cent in 2018, with growth of 1.5 per cent forecast for 2019.
The Bank’s next announcement regarding interest rates is scheduled for December 6, 2017.
The author would like to thank Peter Valente, Articling Student, for his assistance in preparing this legal update.
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