Tuesday, July 17, 2012

Bank of Canada maintains rate, cuts growth forecast

    The Bank of Canada maintained its target for its key overnight interest rate at 1.0 percent, as widely expected, and repeated its statement from June that a modest withdrawal of the current "considerable monetary policy stimulus" may be appropriate but the timing of this would depend on how the global and domestic economy develop.
    The BoC forecast that Canada's economy would expand by 2.1 percent this year, 2.3 percent next year and 2.5 percent in 2014 and reach full capacity in the second half of 2013, operating with a small amount of slack than previously anticipated.
    This forecast is down from its April forecast of growth of 2.4 percent in 2012 and 2013.
    "While global headwinds are restraining Canadian economic activity, domestic factors are expected to support moderate growth in Canada," the BOC said in a statement, adding that consumption and business investment were the drivers of domestic growth, reflecting "very stimulative financial conditions."
    The BoC has held its key rate at 1.0 percent since September, 2010.

    Canada's central bank said inflationary pressures are expected to moderate due to a slowdown in global activity and it expects core inflation to remain around 2 percent but CPI inflation was expected to remain noticeably below the 2 percent target over the coming year given the recent fall in oil prices.
    Canada's GDP rose by 0.5 percent in the first quarter from the previous quarter and the inflation rate in May was 1.2 percent, below the bank's mid-point target of 2.0 percent.
    The BOC will publish its full Monetary Policy Report on July 18 but it noted that global growth prospects had weakened since the bank's last policy report in April.




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