CREA – Bank of Canada keeps interest rates on hold
November 3, 2012 Leave a comment
The Bank of Canada announced on October 23rd, 2012 it is keeping kept its key policy rate at 1 per cent, where it has been held steady for two years. This marks the longest period since the 1950s that rates have been left unchanged.
The announcement was similar to those in September and July, including the bottom line that the Bank would still like its next move to be a rate hike. However, the Bank’s tone surrounding the timing and degree of such a move was softened, saying some “modest withdrawal” of current monetary stimulus – read small increase in interest rates– will “likely” be required “over time”.
Much of the Bank’s latest guidance about factors influencing its decision about where interest rates are headed next (up, down, or stable) was a repeat of messages contained in previous announcements this year. However, something new appeared this time around when the Bank indicated it was concerned about how low interest rates were enticing households to take on more debt, and that it would bear “evolution of imbalances in the household sector” in mind as to when it will raise interest rates.
Although the Bank still expects Canada’s economic outlook to brighten, it reiterated a number of external downside risks that may force it to again lower its expectations. These risks include the fact that “Europe is in recession and recent indicators point to a continued contraction”. The Bank also noted that growth has slowed by more than expected in China and other major emerging economies, but added that there are now signs of stabilization around current growth rates. It also reiterated that economic growth in the United States was continuing at a “gradual pace”.
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