Bank of Canada keeps key rate at historic low
Published Tuesday, December 8, 2009 6:35PM EST
The Bank of Canada announced Tuesday it will keep its key interest rate unchanged at a record low 0.25 per cent, saying there are still "significant fragilities" in the economy.
It was a widely expected move as part of the bank's effort to pump more stimulus into the economy.
"Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010," Bank of Canada Governor Mark Carney said in a statement.
Canada's economy grew in the third quarter, but gross domestic product was weaker than analysts expected, due to the "persistent strength" of the Canadian dollar dragging exports down. This factor could continue to be a "significant further drag on growth and put additional downward pressure on inflation," the bank warned.
While the strong dollar helps keep inflation in check, as it reduces the number of dollars required to buy imported goods and services -- it also eats into worldwide demand for Canada's exports.
The bank said policy makers see inflation returning to their 2 per cent target in the second half of 2011, and that overall risks to the inflation projection "are tilted slightly to the downside" -- a reminder that policy makers are unlikely to hasten a return to higher interest rates unless conditions change.
The bank said the risks to the outlook for inflation continue to be those that were outlined in the October monetary policy report.
On the upside: "the main risks are stronger-than-projected global and domestic demand."
On the downside: "the main risks are a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation."
The bank's next scheduled date for announcing the overnight rate target is January 19, 2010.