Bank of Canada Holds Rates- Again

In times of economic uncertainty, being predictable can sometimes be a good thing. 

This morning, the Bank of Canada announced that it will, once again, hold the line, with the overnight rate staying at 1 %. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

To the surprise of no one, the BOC stayed put-again. The conditions that have prompted rate holds for the last several rounds are still in place, and the threats that they pose to the Canadian economy have not diminished enough to support a rate hike- nor has the Canadian economy dwindled sufficiently to cause a rate cut. 

It’s the same culprits as usual, but the BOC expresses a realistic view of Canadian economic growth, suggesting that while Canada is not an economic island, is perhaps less vulnerable then they originally thought: “The sovereign debt crisis in Europe has intensified, conditions in international financial markets have tightened and risk aversion has risen. The recession in Europe is now expected to be deeper and longer than the Bank had anticipated in October.” 

“The Bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks. In the United States, while the rebound in real GDP during the second half of 2011 was stronger than anticipated, the Bank expects the U.S. recovery will proceed at a more modest pace going forward, owing to ongoing household deleveraging, fiscal consolidation and the spillovers from Europe.” 

The Bank of Canada seems cautiously optimistic for the future, and has adjusted their economic forecast for 2012 economic growth upwards modestly to 2%. They then expect the economy to ramp up towards the end of this year, and into 2013, and have placed growth targets for 2013 at 2.8%. The economy beat their performance expectations for the latter half of 2011.

While they admit that trouble continues to brew globally, it is not necessarily going to spill over with as significant an impact as they had originally thought.



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