Bank of Canada leaves key interest rate unchanged
Published Tuesday, October 23, 2012 6:37AM EDT
Last Updated Tuesday, October 23, 2012 10:47AM EDT
The Bank of Canada is leaving its key lending rate unchanged at one per cent.
The announcement came Tuesday morning, in a statement that notes the U.S. economy is expanding at a "gradual pace," indicators point to a "continued contraction" in Europe, and growth has slowed "more than expected" in China and other emerging economies.
For Canada, the statement paints a modestly optimistic outlook that singles out the rising price of commodities produced here, including oil, in recent months.
The statement notes that exports remain weak, however, and housing activity is expected to pull back from historic highs.
While the performance of the global economy has also constrained Canadian economic activity, the Bank nevertheless projects a "moderate expansion."
"Following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013," the BoC said, pointing to consumption and business investment as key drivers. "After taking into account revisions to the National Accounts, the Bank projects that the economy will grow by 2.2 per cent in 2012, 2.3 per cent in 2013 and 2.4 per cent in 2014."
That's a very slight revision from the Bank's July statement, in which it projected the Canadian economy would grow by 2.1 per cent this year, 2.3 per cent next year and 2.5 per cent in 2014.
"Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target," the latest statement said.
The Bank also makes explicit reference to Canadians' growing credit obligations, projecting that "the household debt burden is expected to rise further before stabilizing by the end of the projection horizon."
In that light, the statement released Tuesday makes clear, for the first time, that the central bank will consider the state of Canadians' household finances before increasing its trendsetting interest rate.
"The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector."
In recent years, the Bank's consistently low overnight lending rate has meant Canadians have enjoyed relatively cheap access to cash.
While that's stimulated the weak economy, it has also contributed to record levels of household debt across the country.
In a recent revision of economic date, Statistics Canada pegged household credit-market debt at 163 per cent of income -- a level similar to that of the U.S. ahead of the 2007-08 housing market crash.