Bank of Canada holds rates, sees faster rebound

Thu Sep 10, 2009 10:08am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's economy may rebound more sharply than anticipated in the second half of this year, the Bank of Canada said on Thursday while holding its key interest rate unchanged at 0.25 percent, as expected.

In a mostly upbeat statement that triggered a rise in the Canadian dollar, the bank said expansionary fiscal and monetary policies, improvements in financial markets, higher commodity prices and a return of confidence have buoyed the economy.

"Combined with recent information on inventory adjustments and automotive production, this suggests that GDP growth in the second half of 2009 could be stronger than the bank projected in July," it said in a statement.

In July the bank projected average annualized growth of 2.15 percent in the second half, with 1.3 percent in the third quarter and 3.0 percent in the fourth.

It won't provide forecasts for next year until October 22, when it publishes its quarterly Monetary Policy Report.

Despite the revised outlook, the central bank repeated its pledge to hold the overnight target rate at its historic low level until the end of June next year as long as inflation stays in check.

It also once again warned that "persistent strength in the Canadian dollar" remained a risk to the economic recovery and to inflation, and said it could react by taking unconventional measures as needed to support growth, such as printing money.

But its language on the currency was no tougher than in the recent past. Most market players do not believe the bank will intervene to brake the currency's surge from the four-year low it hit in March.   Continued...

<p>The Bank of Canada building is pictured in Ottawa July 30, 2009. REUTERS/Chris Wattie</p>