Bank of Canada holds rates, cites weaker growth

Tue Dec 7, 2010 10:17am EST
 
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada held its key interest rate steady on Tuesday and set the stage for rates to stay unchanged into next year by emphasizing its concern over weaker exports and the risks posed by Europe's debt woes.

The bank, as expected, maintained its overnight lending target at 1 percent for a second consecutive time. In June it had become the first central bank in the G7 advanced countries to raise borrowing costs following the recession, and subsequently raised rates twice more.

"Any further reduction in monetary policy stimulus would need to be carefully considered," it said in a statement, repeating language used in its last decision in October.

The Canadian dollar softened to C$1.0041 to the U.S. dollar, or 99.59 U.S. cents, from about C$1.0027, or 99.73 U.S. cents, right before the announcement. It later recovered.

All 44 forecasters surveyed by Reuters last week had predicted no change in rates, but markets are divided on the timing of the first increase in 2011.

The bank's overall tone was not much different from six weeks ago when it signaled it would need considerable persuasion that the global recovery was gaining traction before increasing rates again, analysts said.

It said the global and domestic recoveries were advancing, but it warned of an increased risk that Europe's sovereign debt concerns could trigger financial market strains.

The bank also said the trade-reliant Canadian economy was recovering slightly more slowly than it projected in its quarterly outlook in October as the strong Canadian dollar hampered exports.   Continued...