BoC keeps benchmark interest rate at one per cent
Published Tuesday, July 17, 2012 6:52AM EDT
Last Updated Tuesday, July 17, 2012 10:41AM EDT
Once again the Bank of Canada has elected to keep its benchmark lending rate at a rock bottom level, announcing Tuesday it will remain at 1 per cent at least until September.
The measure is seen as a sign the central bank still has concerns about the fragile global economy and Canada's own financial picture.
The bank said as much in a release Tuesday accompanying the announcement.
"Global growth prospects have weakened since the Bank's April Monetary Policy Report (MPR). While the economic expansion in the United States continues at a gradual but somewhat slower pace, developments in Europe point to a renewed contraction," stated the release.
The slowdown of growth in China has also been greater than expected, the bank said.
The announcement marks the 15th consecutive time the Bank of Canada has kept its key lending rate at 1 per cent.
However in recent months, Bank of Canada Governor Mark Carney had hinted at the possibility of raising the rate as Canada's economy gathered steam.
Carney even delivered a hopeful monetary policy review in April, surprising many economists who didn't share his rosy outlook.
However, the economy failed to meet Carney's expectations. The Bank of Canada had predicted the country would experience 2.5 per cent growth in the first quarter of 2012, but the economy fell short of those predictions with just 1.9 per cent growth.
The Bank of Canada says it now expects Canada's economy to grow by 2.1 per cent this year and 2.3 per cent in 2013, down from its April prediction of 2.4 per cent growth in both years.
On Monday, the International Monetary Fund predicted Canada's economy would grow by 2.1 and 2.2 per cent in the two years, respectively.
Craig Wright, senior vice-president and chief economist at RBC, said a number of factors will have to come into play before the Bank of Canada decides to bump up the overnight lending rate.
"We need to see less bad news out of the global economy, we need to see some stabilization in the eurozone...we need emerging economies to start to pick up growth prospects and we need the U.S. to stabilize and hopefully improve as we go forward," Wright told CTV News Channel.
He added: "That will all take place alongside a firming domestic economy and then we'll see, we think, the environment being appropriate for a move back to more normal levels."
In its Tuesday statement, the Bank of Canada said "global headwinds" were restraining Canada's growth, but moderate expansion was still expected moving forward, with the pace of that growth increasing in 2013.
"Consumption and business investment are expected to be the primary drivers of growth, reflecting very stimulative domestic financial conditions," said the statement.
However, the bank warned that record-high household debt and lower commodity prices, as well as a cooling housing market will all have a moderating effect on Canada's economic growth.