BoC keeps policy interest rate at one per cent, says growth to pick up in 2013
by The Canadian Press
Canada recorded modest 1.8 per cent growth rate in both the first and second quarter of this year
OTTAWA—The Bank of Canada (BoC) is hinting it will need to keep interest rates at super-low levels for a while longer, saying stronger growth isn’t in the cards for the country until 2013.
As expected, the bank’s policy-setting panel headed by governor Mark Carney kept the trendsetting interest rate at one per cent Wednesday morning, the same level it’s held for the past two years.
And while Carney left his tightening bias unchanged—meaning the next move will likely be to raise rates—his suggestion that low interest rates are at least partly responsible for keeping Canada’s economic head above water in the face of global turbulence hinted at continuing that policy.
“In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy’s production potential,” the bank said in an accompanying statement.
“Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions.”
Canada recorded a modest 1.8 per cent growth rate in both the first and second quarter of this year, and projections are for a similar tepid performance in the second half of the year.
The good news, the bank said, is that there are signs that the housing market is slowing, although those are “tentative” and the household debt burden continues to rise.
That takes some pressure off the bank to raise rates in order to head off a housing bubble.
As well, the bank is not worried about inflation, which it said would return to the two per-cent target over the next 12 months.
The big drag on the economy, the bank says, is the export sector, which is being restrained by weak foreign demand, ongoing competitive issues and the high Canadian dollar.
Exports won’t return to their pre-recession peak until early 2014, it added.
The bank’s analysis is in line with many private sector economists who believe Carney won’t be in position to push the interest rate lever forward until mid-to-late 2013, and only if global conditions improve.
The bank’s statement gives no sense of a turnaround in the global economy any time soon.
“The economic expansion in the United States continues at a gradual pace,” it said. “Europe is in recession and its crisis, while contained, remains acute.”
“In China and other major emerging economies, growth is decelerating somewhat more quickly than expected from previously rapid rates, reflecting past policy tightening, weaker external demand and the challenges of re-balancing towards domestic sources of growth.”
Notwithstanding the global problems, it notes that prices for oil and other commodities produced by Canada have, on average, increased since July, which is also helping the Canadian economy cope.
The bank did not issue a new forecast Wednesday, but said conditions remain roughly in line with its July expectations, when it pegged growth in Canada at 2.1 per cent this year and 2.3 per cent in 2013.
