Bank of Canada holds rate at 1%
Oct 23, 2012 / 7:10 am
The Bank of Canada kept its trendsetting policy interest rate at one per cent for the 17th consecutive time today, but signalled that it's worried about household debt.
The stand-pat decision on the policy rate was widely expected, but economists had been looking for softer language on the warning that the next move will be to hike interest rates.
Bank governor Mark Carney kept the previous language largely intact and the bank's statement on the economy wasn't as subdued as some had expected.
The bank also indicated that it's still worried about household debt, which it says it believes will continue to rise before stabilizing in a few years.
It says it will consider the imbalances in the housing sector in its future monetary decisions, something it did not mention in previous reports.
The bank judges that the global economy is unfolding largely as it expected and economic expansion is continuing in the U.S., although at a slow pace. As well, global financial conditions have improved due to aggressive policy actions.
As well it largely gave the Canadian economy a pass, and in fact upgraded expectations for growth this year to 2.2 per cent from its previous call of 2.1.
That is in variance with many private sector economists who have ratcheted down growth expectations for this year to below two per cent.
"Following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013," it said.
"The bank continues to project that the expansion will be driven mainly by growth in consumption and business investment," but that housing activity will slow and exports are expected to remain below pre-recession levels until the first half of 2014.
As for hiking slightly this year's growth projection, the bank said that was due to revised methodology recently adopted by Statistics Canada, which bumped up growth in the second quarter one-tenth of a point to 1.9 per cent.
The bank said it was still worried about household debt, which it said it believes will continue to rise before stabilizing in a few years. It said it will consider the imbalances in the housing sector in its future monetary decisions, something it did not mention in previous reports.
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