Central bank keeps key interest rate at 1 per cent
Published Tuesday, March 1, 2011 8:15PM EST
Canada's central bank will keep its short-term interest rates at historically low levels for the early spring, as domestic inflation remains under control but uncertainties persist about the global economy.
The Bank of Canada announced Tuesday that it would keep its overnight lending rate at 1 per cent, keeping it at the same level where it has been for the past six months.
The decision to stay the course matched the predictions of many economists who do not see the central bank raising interest rates so early in the year.
Economist David Madani of Capital Economics said Tuesday that the bank gave no hint that it sees any interest rate hikes on the horizon.
Looking ahead on the calendar, in fact, Madani said there was "little need for the Bank of Canada to raise interest rates" in 2011.
Central bank lays out strengths, weaknesses
While acknowledging that Canada's economy is seeing a slightly faster-than-expected recovery, the central bank also said it harbours concerns about the global economy, as well as a persistently strong dollar that poses challenges for Canadian exports.
But the bank said business investment is on the rise in Canada and a greater global demand for commodities is driving up exports, despite the high dollar. American demand for Canadian exports is also increasing.
The bank also reports that consumption growth "remains strong" and household spending is growing in line with household incomes.
Uncertainty in the global economy
Outside of Canada, the central bank sees the stimulus-dependent American economy and the ongoing debt problems in Europe as "significant" sources of uncertainty in the global economy.
Scotiabank economist Derek Holt said many central banks are concerned about "how developments in Europe, the Middle East and commodity markets will unfold" in the near future.
"The last thing you want to do is signal hawkish expectations right now and look foolish three to six months down the road," Holt said Tuesday.
Ian Lee, an assistant professor at Carleton University's Sprott School of Business, said the Canadian economy is in a position of relative strength because it has not had to pay for foreign bailouts, like Germany did for countries in southern Europe. And Ottawa does not have to deal with indebted internal governments, such as Illinois or California in the United States.
"We are the strongest economy in the Western world, in my judgment, bar none," Lee told CTV News Channel during an interview from Ottawa on Tuesday morning.
Inflation stays low in Canada
The Bank of Canada also said rising inflation is becoming an issue around the globe, though not so much in Canada where "underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy."
BNN's Martin Baccardax said that is the view of several Western central bankers that while the current increase in food and energy prices is accelerating inflation, it may not be a permanent phenomenon.
And because we use a constant amount of food and oil in our daily routines, "raising interest rates isn't going to slow the advance of those prices," Baccardax told CTV News Channel on Tuesday.
The central bank is scheduled to announce its next update on interest rates on April 13.
With files from The Canadian Press