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Written by Julian Beltrame, THE CANADIAN PRESS
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Saturday, 06 September 2008 |
Bank of Canada Governor Mark Carney. THE CANADIAN PRESS/Tom Hanson
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OTTAWA - The Bank of Canada kept interest rates unchanged for the third consecutive monetary policy date Wednesday despite acknowledging that both economic growth and inflation are lower than it had projected last month.
The central bank's decision to keep the trend-setting overnight rate at three per cent had been widely predicted, although some economists suggested a rate cut was needed to inject life into the dormant economy.
But in a statement released with the announcement Wednesday morning, the bank downplayed the changed outlook for the economy since it last reported in July.
"In Canada, domestic demand has slowed modestly but remains strong," the bank said.
"Overall, the level of economic activity is slightly lower than expected in July but still close to the economy's production capacity."
Last week, Statistics Canada reported the economy had grown a paltry 0.3 per cent during the April-June quarter, half a point less than bank governor Mark Carney forecast last month. As well, the statistical agency said the economy experienced a much worse winter than first thought, contracting by 0.8 per cent instead of the 0.3 per cent decline initially reported.
As well, Canada's economy has gone from producing jobs to shedding them, losing 55,000 workers in July.
Meanwhile, inflationary pressures, Carney's main concern, appear to have eased since July.
The bank said Wednesday it still expects inflation to return to its two per cent target in the second half of 2009, but now does not believe the temporary spike in prices to above four per cent it had warned about will materialize.
Lower energy prices due to a slowing global economy mean inflation in Canada will be weaker than previously projected for the rest of the year, the bank said. Inflation currently stands at 3.4 per cent.
However, the statement warned that energy prices remain volatile because of tight inventories.
The bank said the economy remains vulnerable to U.S. weakness and tight credit conditions that could further drag down demand for Canadian exports.
On the other hand, lower energy prices since July have pulled down the Canadian dollar from parity to the 95-cent US level, which should help manufacturers and other exporters.
"Given these developments, the bank judges that the current level of the target for the overnight rate remains appropriately accommodative," it said.
While interest rates have remained unchanged since April, the Bank of Canada dramatically lowered borrowing costs during the winter, chopping the overnight rate from 4.5 per cent to the current three per cent.
The bank's next interest rate decision will be Oct. 21.
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Last Updated ( Saturday, 06 September 2008 )
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