BoC Keeps Its Benchmark Interest Rate at 1%

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 recovery is proceeding largely as
expected, although risks have increased. As anticipated, private
domestic demand in the United States is picking up slowly, while
growth in emerging-market economies has begun to ease to a more
sustainable, but still robust, pace. In Europe, recent data have
been consistent with a modest recovery. At the same time, there
is an increased risk that sovereign debt concerns in several
countries could trigger renewed strains in global financial
markets.
The recovery in Canada is proceeding at a moderate pace,
although economic activity in the second half of 2010 appears
slightly weaker than the Bank projected in its October Monetary
Policy Report. In the third quarter, household spending was
stronger than the Bank had anticipated and growth in business
investment was robust. However, net exports were weaker than
projected and continued to exert a significant drag on growth.
This underlines a previously-identified risk that a combination
of disappointing productivity performance and persistent strength
in the Canadian dollar could dampen the expected recovery of net
exports.
Inflation dynamics in Canada have been broadly in line with
the Bank’s expectations and the underlying pressures affecting
prices remain largely unchanged.
Reflecting all of these factors, the Bank has decided to
maintain the target for the overnight rate at 1 per cent. This
leaves considerable monetary stimulus in place, consistent with
achieving the 2 per cent inflation target in an environment of
significant excess supply in Canada. Any further reduction in
monetary policy stimulus would need to be carefully considered.
Information note: The next scheduled date for announcing the
overnight rate target is 18 January 2011. A full update of the
Bank’s outlook for the economy and inflation, including risks to
the projection, will be published in the Monetary Policy Report
on 19 January 2011.

Bank of Canada

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