Bank of Canada keeps rates low despite robust growth

Tue Mar 2, 2010 10:37am EST
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada held its key interest rate at a record low on Tuesday, but signaled it is getting closer to raising rates, though promising again not to do so before the third quarter.

The central bank reiterated the commitment it made in April 2008 to keep its target overnight rate at a record low 0.25 percent until the end of the second quarter, conditional on inflation staying on track.

In its policy statement, however, it acknowledged stronger-than-expected economic growth and inflation and it removed a reference to downside risks to its inflation outlook that had been present in previous statements -- all suggesting a slightly more hawkish stance.

"This is a statement that is a little stronger than in the past," said Eric Lascelles, chief economics and rates strategist at TD Securities.

"But it looks like they are reluctant to change their view and I think you can still conclude that we're not going to get any hikes in the next little while," he said.

The Canadian dollar firmed following the rate announcement, rising to a high of C$1.0315, or 96.95 U.S. cents, from about C$1.0366, or 96.47 U.S. cents, before the central bank statement.

Yields on overnight index swaps, which trade based on expectations for the key policy rate, edged lower, showing the market saw tightening as slightly less likely than before the statement..

Nine of 12 primary securities dealers surveyed by Reuters last week said they expected no rate increases before July, with one seeing the first hike in April and two expecting a hike in June.   Continued...