Bank of Canada maintains overnight rate target at 1 per cent

| Tuesday, 1 March 2011

The Bank of Canada announced that it is maintaining its target for the overnight rate at 1 per cent.

 

In its decision, the Bank showed caution in the face of an improving Canadian economy.

 

“The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand,” stated the Bank. “While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes”

 

Bank of Canada Governor Mark Carney indicated that while there is evidence of a recovery in net exports, “supported by stronger U.S. activity and global demand for commodities” the global economic recovery still poses risks, such as the upheaval in Middle East oil-producing countries.

“Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events,” said the Bank.
TD senior economist Pascal Gauthier said in a statement that he thinks July 19 is the likeliest date for a raise in the BoC policy rate. "Those looking for a change to a more hawkish tone, particularly in the forward-looking guidance part of the statement were disappointed."
RBC said today's announcment indicates that the Bank needs to be convinced that the stronger momentum will continue. "Our forecast is that the economy will record another solid gain in the first quarter of 2011 of 3.7 per cent and that the economy will grow by 3.2 per cent this year, which is well above the Bank's current 2.4 per cent estimate. The balance of risks to the Bank's current outlook is clearly skewed to the upside, and we maintain our call for 100 basis points of rate increase in 2011 with the first hike coming in May 2011," said Dawn Desjardins, assistant chief economist, RBC Economics.

The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.