Bank of Canada maintains overnight rate target at 1 per cent
| Tuesday, 18 January 2011
As most predicted it would, the Bank of Canada announced today it is maintaining its target for the overnight rate at one per cent.
“The global economic recovery is proceeding at a somewhat faster pace than anticipated, although risks remain elevated,” said the Bank of its decision to leave borrowing costs at one per cent for the third time in a row.
The Bank cited concerns with the pace of the European recovery due to sovereign debt as well the continued strength of the Canadian dollar and poor productivity performance.
”The recovery in Canada is proceeding broadly as anticipated, with a period of more modest growth and the beginning of the expected rebalancing of demand,” said the Bank in a statement. “However, the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.”
Overall, the Bank projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012 – a slightly firmer profile than had been anticipated in the October MPR. With a little more excess supply in the near term, the Bank continues to expect that the economy will return to full capacity by the end of 2012.
“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.”