Bank of Canada holds rates, ups growth forecasts

Tue Jan 18, 2011 9:12am EST
 
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OTTAWA (Reuters) - The Bank of Canada held its key interest rate steady on Tuesday, as expected, while slightly increasing its growth forecasts for 2011 and 2012 to reflect the strength of the global economic recovery.

The central bank maintained its overnight lending target at 1 percent for the third consecutive time after hiking rates three times between June and September 2010.

"Any further reduction in monetary policy stimulus would need to be carefully considered," it said in a statement, repeating the language used in its two previous rate decisions.

The Bank, saying the global economy was recovering somewhat faster than it had expected, said it expected the Canadian economy to grow by 2.4 percent in 2011 and by 2.8 percent in 2012. Last October it put likely 2011 growth at 2.3 percent and 2012 growth at 2.6 percent.

It said the recovery in Canada was proceeding as anticipated, with the pace of growth slowing and household balance sheets remaining stretched while business investment is gaining momentum. Stronger U.S. activity meant net exports would contribute more to growth.

"However, the cumulative effects of the persistent strength in the Canadian dollar and Canada's poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada's current account deficit to a 20-year high," it said in a statement. (Reporting by David Ljunggren and Leah Schnurr, editing by Louise Egan)