Bank of Canada holds rates, defends growth outlook

Tue Dec 8, 2009 9:05am EST
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OTTAWA (Reuters) - The Bank of Canada held its key interest rate on Tuesday at 0.25 percent, as expected, and maintained its outlook on the economic recovery despite unexpectedly weak third-quarter growth.

"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, repeating its conditional commitment to keep rates at near zero until the end of June 2010.

The bank once again flagged the strong Canadian dollar as a major risk to its view, saying it could "act as a significant further drag on growth and put additional downward pressure on inflation."

It dropped a reference it made in October that the currency could "more than fully offset" favorable economic developments since July -- an apparent concession to the fact that third-quarter annualized growth was well below its 2 percent projection at a tepid 0.4 percent.

The bank expects the expansion to pick up speed and become more widespread across the private sector in the fourth quarter and into 2010.

Inflation will return to the 2 percent target in the second half of 2011, it said. In October, the bank was more precise in saying inflation would hit the target in the third quarter of that year.

(Reporting by Louise Egan; Editing by Randall Palmer)

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