Bank of Canada sees no early rate hike despite data

Tue Dec 8, 2009 11:13am EST
 
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada held its key interest rate near zero on Tuesday, as expected, and dampened any expectations of an early rate hike even though it said it sees economic recovery gathering momentum in coming quarters.

The central bank repeated its pledge to hold the overnight rate at 0.25 percent until the end of June 2010, conditional on inflation staying on track.

The decision was widely expected by primary securities dealers surveyed by Reuters but markets were closely watching for any sign the bank would tweak its outlook after a surge in jobs growth in November and other surprisingly upbeat recent data.

The bank stuck to its medium-term projection.

"The main drivers and the profile of the projected recovery in Canada remain consistent with the bank's views in the October Monetary Policy Report," the central bank said in a statement.

The bank walked a fine line between warning of "significant fragilities" in the global economy, and predicting Canadian growth would become more solidly entrenched in coming quarters.

"Their point about 'significant fragilities' is kind of a Canadian version of (U.S. Federal Reserve Chairman Ben) Bernanke's 'formidable headwinds' yesterday," said Derek Holt, economist at Scotia Capital.

"They want to be careful not to rock the boat on rates given what I think are very legitimate questions about sustainability," he said.   Continued...

 
<p>Mark Carney, Governor of the Bank of Canada, addresses the Foreign Policy Association in New York, November 19, 2009. REUTERS/Mike Segar</p>