By: Julian Beltrame, The Canadian Press

OTTAWA – The Bank of Canada is hinting it will need to keep interest rates super-low for an extended period to keep stimulating the economy in the face of a scary global environment and recessionary risks.

As expected, the central bank left its target overnight rate at one per cent for the ninth decision date in a row and gave every indication that Canadians can bank on lending conditions staying “stimulative” for many more.

But the tone of the bank’s unusually long accompanying statement was darker than many had expected, even though economists were calling on governor Mark Carney to sharply revise the summer’s more sunny forecast.

The bank’s policy team took the advice to heart. Not only is growth braking dramatically in the industrialized world, even China and other emerging nations can be expected to lower their sights for the near future. Most dramatically, the bank said Europe will most likely now experience a recession — a brief one, it said, although it warned Canadians to stay tuned on that bit of optimism.

“The global economy has slowed markedly as several downside risks… have been realized,” the bank said.

“The combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies. The bank now expects the euro area… will experience a brief recession.”

As gloomy as it is, that was the bank’s base-case scenario and it “assumes the euro-area crisis will be contained.” It offered no analysis on what will happen if it isn’t.

Canada’s economy is currently feeling the impact of Europe, the U.S. and slower growth in emerging nations.

“Although Canadian growth rebounded in the third quarter (which ended Sept. 30) with the unwinding of temporary factors, underlying economic momentum has slowed and is expected to remain modest through the middle of next year,” the bank said.

It estimated Canada’s economy likely grew a modest 2.1 per cent this year — most of it in the first quarter — and will fare even worse at 1.9 per cent next year. Both numbers were 0.7 percentage points less than the bank had projected in July.

And a return to normal growth is a long way off, the bank added. Constrained by lower demand for exports, a high dollar, falling commodity prices, skittish markets and a more cautious consumer, it won’t be until the end of 2013 that the economy will return to full capacity, with an average growth rate of 2.9 per cent. That’s more than four years after the official end of the 2008-09 recession.

Given the under-utilization of the economy’s capacity and weakness abroad, the Bank of Canada was not particularly worried about inflation, despite last Friday’s report showing consumer prices rose 3.2 per cent in September, above the bank’s range, and that underlying inflation pressures continue to rise.

The bank said it expects consumer price increases will soon start slowing and bottom out at around one per cent next summer before trending upwards toward the bank’s two per cent target at the end of 2013.

That would suggest the bank might be thinking of cutting the overnight rate before raising it, but the bank suggested that isn’t likely either.

“With the target rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada,” it said.

The next scheduled Bank of Canada meeting is December 6th 2011.

Ottawa, Ontario – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic outlook has deteriorated in recent weeks as several downside risks to the projection in the Bank’s July Monetary Policy Report (MPR) have been realized. The European sovereign debt crisis has intensified, a broad range of data has signalled slower global growth, and financial market volatility has increased sharply. Recent benchmark revisions show that the U.S. recession was deeper and its recovery has been shallower than previously reported. In combination with recent economic data, this implies that U.S. growth will be weaker than previously anticipated. The Bank expects that American household spending will be even more subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions. Fiscal stimulus in the United States will also soon turn into material fiscal drag. Acute fiscal and financial strains in Europe have triggered a generalized retrenchment from risk-taking and could prompt more severe dislocations in global financial markets. Resolution of these strains will require additional significant initiatives by European authorities. Growth in emerging-market economies has been robust, although its rate and composition will be affected by weakness in major advanced economies. While commodity prices have declined owing to diminished global growth prospects, they remain relatively high.

Largely due to temporary factors, Canadian economic growth stalled in the second quarter. The Bank continues to expect that growth will resume in the second half of this year, led by business investment and household expenditures, although lower wealth and incomes will likely moderate the pace of investment and consumption growth. The supply and price of credit to businesses and households remain very stimulative. However, financial conditions in Canada have tightened somewhat and could tighten further in the event that global financial conditions continue to deteriorate. Net exports are now expected to remain a major source of weakness, reflecting more modest global demand and ongoing competitiveness challenges, in particular the persistent strength of the Canadian dollar.

Slower global economic momentum will dampen domestic resource utilization and inflationary pressures. The Bank expects total CPI inflation to continue to moderate as temporary factors, such as significantly higher food and energy prices, unwind. Core inflation is expected to remain well-contained as labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.

The next scheduled date for announcing the overnight rate target is 25 October 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.

By Courtney Tower

OTTAWA (MNI) – The Bank of Canada continued to hold its policy interest rate at 1.0% Tuesday, as expected, although it’s reading of the Canadian, global and U.S. economies was far more positive than before.

The Bank in its scheduled announcement maintained the 1.0% target for the overnight rate for the fifth consecutive setting, and for the fifth time it cautioned: “Any further reduction in monetary policy would need to be carefully considered.”

Apart from continuing to give no hint of future rate hikes as the economy improves and inflationary pressures might build, the Bank in its brief statement gave a picture of a strengthening Canadian economy, global recovery “expected to continue at a steady pace,” and United States growth that is “solidifying.”

The BOC will expand upon its analysis of the Canadian and global economic outlooks Wednesday in a quarterly Monetary Policy Report, but the more bare-bones sketch on Tuesday is the most generally positive in many months.

The BOC admitted that its January projection of Canadian growth at 2.4% for 2011 has been well outstripped, and now projects it at 2.9% at an annual rate. It sees 2.6% growth for Canada in 2012.

And further, the Bank now sees the output gap reduced to zero, with the economy operating at full capacity, by mid-2012 instead of by the end of 2012 as it had earlier expected.

For Canada, the Bank said activity is “rebalancing toward business investment and net exports, and away from government and household expenditures.” It expects business investment to “rise rapidly.” Net exports, however, will be constrained “by ongoing competitiveness challenges” — BOC-speak for a poor productivity record. These chalenges are “reinforced by the recent strength of the Canadian dollar.”

Underlying inflation in Canada remains “subdued,” the Bank said, but temporary factors will boost total or headline inflation to a high 3% in the current second quarter, before it goes back to the 2% target by mid-2012. Core inflation, on which the Bank fixes for its policy (lately running at a very low 0.9%) will rise gradually to 2%.

Core inflation will perform as the Bank expects, “as excess supply in the economy is slowly absorbed, labor compensation stays modest, productivity recovers, and inflation expectations remain well-anchored.”

The Bank sees global economic recovery in Europe as “becoming more firmly entrenched.” U.S. growth will continue, although limited by consolidation of household and, ultimately, government balance sheets. Global inflationary pressures will rise and global financial conditions “remain very stimulative.”

** Market News International Ottawa **

Date: April 12th, 2011
(CBC News)

The Bank of Canada kept its benchmark lending rate unchanged at one per cent in its latest decision on Tuesday.

Since raising its overnight lending rate to one per cent in September, the bank has held steady for five consecutive policy decisions.

Economists had expected the central bank to hold rates steady, citing the fact that inflation still appears to be under control in Canada.

“We judge that the BoC will want to monitor core CPI for signs of ‘consistency’ for at least a couple months more,” Michael Gregory, senior economist at BMO Capital Markets Economics, said in a report a week ago.

For its part, the Bank of Canada said economic growth in the United States appears to be picking up steam, while emerging markets continue to expand at a robust pace.

But the recent Japanese earthquake will cause supply disruptions, the monetary authority said.

In addition, while Canada’s gross domestic product growth is better than anticipated, the expansion is not setting off inflationary alarm bells, the bank said.

Canada steady, Europe not so

The bank’s decision comes in the face of an interest rate hike in Europe. Earlier in April, the European Central Bank raised its trend-setting rate by one-quarter of one percentage point to 1.25 per cent.

Historically, European monetary authorities have been much quicker to clamp down on economic growth to ease inflationary pressures than either Canada or the United States.

Most central banks have begun worrying that soaring commodity prices, including for foodstuffs, and gathering strength among the world’s major economies could reignite a general round of price hikes in industrialized countries.

But, as of yet, the U.S. Federal Reserve is still taking a “wait-and-see” approach before hiking U.S. rates.

“Most Fed members have made it clear that rising commodity prices are not [the] result of U.S. monetary policy nor does it require a policy response,” noted Camilla Sutton, chief currency strategist at Scotia Capital in a Tuesday note.