Bank of Canada holds rates, sees faster recovery

Wed Jan 18, 2012 12:15pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Louise Egan and Randall Palmer

OTTAWA (Reuters) - The Bank of Canada held its key policy rate at 1 percent on Tuesday, but forecast a faster Canadian recovery than expected despite an increasingly worrying outlook for the global economy.

Governor Mark Carney has held the central bank's rate unchanged for 16 months, the longest period without a rate change since the bank began targeting the overnight rate in 1994. A below-inflation 1 percent rate is providing considerable stimulus to the domestic economy, it says.

"For the Bank of Canada, 2011 was the year of 'copy and paste' when setting the overnight rate. This theme is expected to prevail throughout 2012," said David Tulk at TD Securities.

The bank said its overall Canadian economic outlook was little changed from October. But a stronger-than-expected second half of 2011 meant the economy should reach full capacity and inflation should return to its 2 percent target by the third quarter of 2013, one quarter sooner than previously forecast.

Inflation was 2.9 percent in November, the last month for which figures are available, and is forecast to ease to 2.8 percent in December.

The bank raised its projections for 2011 economic growth to 2.4 percent from 2.1 percent and for 2012 to 2 percent from 1.9 percent. Its estimate for 2013 was 2.8 percent, slightly lower than originally forecast.

But there is little sign that the bank is worried about a speedier return to full capacity. In its July Monetary Policy Report, the central bank said economic headwinds meant the policy rate could "deviate from its long-run level even if inflation is at target and output is at potential."

Economists and strategists in a Reuters poll had predicted no rate change on Tuesday and expect the bank to stay on the sidelines for at least another year.   Continued...