July 19 2011 – BoC: Holds Key Interest Rate 1.0%

Date: Tuesday, July 19th, 2011

By Courtney Tower

OTTAWA (MNI) – The Bank of Canada held its policy rate at 1.0% Tuesday for its 7th setting but signalled some cautious revision in its previous position that such stimulus to the economy would only be eventually withdrawn.

The central bank maintained the pause it began last October, after three 25 basis point increases from its year-long rock-bottom 0.25% rate.

The BOC did say, as it has for several settings, that further reduction in stimulus “would need to be carefully considered.” But it removed the word “eventually” from the previous statements and said:

“To the extent that the (Canadian) expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2 per cent inflation target.”

The Bank in its statement described Canada’s economic picture in relatively positive terms, with dangers coming from overall global inflationary pressures and a weak United States economy making Canadian net exports slow.

United States growth has been slower than the Bank had expected in its policy study last April and growth in “core Europe” a little stronger, the statement said. Japan would operate “below previous expectations.” Emerging markets, especially China, are seen continuing “very strong” growth.

That emerging market growth, demanding the world’s commodities, will keep resources prices “at elevated levels” following recent declines, the BOC said. And these prices, along with “persistent excess demand” in the same emerging market countries, are contributing to global inflation pressures.

The Bank also cites the European sovereign debt scene as another contributor to risk aversion and volatility in financial markets. Indeed, the BOC bases its whole projection for Canadian and global economic conditions on the assumption that the ongoing Europe sovereign debt crisis will be contained. However, it said, “there are clear risks around this outcome.”

Canadian growth has been slightly slower than the Bank had expected in April, it said. But it expects growth to “re-accelerate” in the second half of this year.

“Household spending remains solid and business investment robust,” the statement said. Net exports remain weak, because of weak U.S. demand and the high Canadian dollar. Financial conditions in Canada “remain very stimulative and private credit growth is strong.”

The Bank sees business investment remaining strong, net exports improving over time, household spending to drop back more in line with disposable income. It sees Canadian GDP growing by 2.8% in 2011, rather than the 2.9% it had expected in April, and by 2.6% in 2012 and 2.1% in 2013 — the two latter as previously expected.

The next dates for announcing the overnight target are September 7 and October 12.

Lawrence Kobescak

Lawrence Kobescak

Lawrence Kobescak, the creator behind OntarioMortgageSuperstore.com is a real estate sales representative, mortgage agent and real estate investor. OntarioMortgageSuperstore.com has reached over 240,000 Canadians since 2009. Lawrence has been quoted in the Globe & Mail and MortgageBrokerNews.ca.

More Posts

Follow Me:
TwitterFacebookGoogle Plus