Bank Of Canada: Maintains Key Interest Rate At 1.0%

Posted on December 10/2010 by

OTTAWA (MNI) – By Courtney Tower – The Bank of Canada maintained its key policy rate at 1.0% Tuesday, as expected, and offered no hint that the next rate setting on January 18 would be any different.

In its fixed-date announcement, the Bank held the 1.0% overnight rate set in October after three successive 0.25% rate hikes from the year-long rock-bottom rate of 0.25%.

The Bank’s explanation was slightly more positive than on October 19, on the mixed Canadian economic performance and on global prospects. But it saw weaker than expected exports continuing to drag down Canadian performance, and increased risk of renewed strain in global markets coming from the debt concerns in European countries.

“The global economic recovery is proceeding largely as expected, although risks have increased,” the Bank said.

Private domestic demand in the United States is considered an upside factor, as it is “picking up slowly.” Also, growth in emerging market countries is still robust but at a “more sustainable” level. And in Europe, “recent data have been consisten mwith a modest recovery.”

The downside is risk of new strains in global financial markets from “sovereign debt concerns in several countries.”

Canadian recovery proceeds “at a moderate pace” although one slightly weaker than the Bank had anticipated. Household spending is strong and business investment robust. On the other hand, net exports “exert a significant drag on growth” because of continued low productivity and the high Canadian dollar.

Given the domestic and global factors, the Bank was holding steady at 1.0%, and repeated exactly the same key phrases it used last October. There remains “considerable monetary stimulus in place”; this stimulus is consistent with achieveing the 2% inflation target; and there still is “significant excess supply in Canada.”

Given all this, the BOC said, “any further reduction in monetary policy stimulus would need to be carefully considered.” These, too, are the same words used last time.


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