Tuesday, January 17, 2012

Bank of Canada Maintains Interest Rate at 1.00%

The Bank of Canada held its target for the overnight rate at 1.00%.  The Bank noted on the Canadian economy: "While the economy had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment. Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment, albeit to a still-solid pace.  Net exports are expected to contribute little to growth, reflecting moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.  In contrast, very favourable financing conditions are expected to buttress consumer spending and housing activity. Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further."

Previously the Bank of Canada also held the target interest rate unchanged at its December meeting; it's last move was a 25 basis point increase to 1.00% in September last year.  Canada reported annual CPI inflation of 2.9% in November and October, compared to 3.2% in September, 3.10% in August, 2.7% in July, 3.1% in June, 3.7% in May, and 3.3% in April, the same as March, according to Statistics Canada.  The Bank of Canada has an inflation target of 2 percent over the medium term.  

Canada reported year on year GDP growth of 3.4% in Q3 2011, 2.2% in Q2, and 2.9% in Q1, while "estimates that the economy grew by 2.4 per cent in 2011 and projects that it will grow by 2.0 per cent in 2012 and 2.8 per cent in 2013."  The Canadian dollar (CAD), also known as the Loonie, has weakened by 3% against the US dollar over the past year, while the USDCAD exchange rate last traded around 1.013.  The Bank of Canada next meets on the 8th of March 2012.


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