Bank of Canada holds rates, cites deeper euro crisis

Tue Dec 6, 2011 11:40am EST
 

By Louise Egan and Randall Palmer

OTTAWA (Reuters) - The Bank of Canada kept its overnight interest rate at 1 percent on Tuesday, as expected, and gave no suggestion of an impending rate cut even though its view of the European debt crisis has clearly darkened.

The central bank extended a freeze on rates for a 15th straight month. While its statement sounded upbeat on near-term growth in Canada and the United States, it cautioned that both will feel the pinch from a "more pronounced" recession in Europe.

"Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis," the central bank said starkly.

The bank now sees Europe's economy shrinking more sharply than it previously expected, which could be felt in Canada through financial, confidence and trade channels.

Six weeks ago, when it released quarterly forecasts, the bank had assumed the European crisis would be contained, although central bank chief Mark Carney in late November characterized it as "barely contained."

But the bank's statement was relatively balanced compared to the gloom markets had been expecting, and it poured cold water on the idea of imminent monetary easing.

The Canadian dollar strengthened to C$1.0113 to the U.S. dollar, or 98.88 U.S. cents, from around C$1.0200 immediately before the announcement.

The interest rate futures market showed traders reduced bets on a rate decrease in the coming year.   Continued...