OTTAWA, June 5, 2012 /CNW/ - The Bank of Canada today announced that it
is maintaining its target for the overnight rate at 1 per cent. The
Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4
The outlook for global economic growth has weakened in recent weeks.
Some of the risks around the European crisis are materializing and
risks remain skewed to the downside. This is leading to a sharp
deterioration in global financial conditions. While the U.S. economy
continues to expand at a modest pace, economic activity in
emerging-market economies is slowing a bit faster and a bit more
broadly than had been expected. More modest global momentum and
heightened financial risk aversion have reduced commodity prices.
Although economic growth in Canada was slightly slower than expected in
the first quarter, underlying economic momentum appears largely
consistent with expectations. However, the composition of growth is
less balanced. In particular, housing activity has been stronger than
expected, and households continue to add to their debt burden in an
environment of modest income growth. Despite external events, business
and household confidence has held up and domestic financial conditions
remain very stimulative. The contribution of government spending to
growth is expected to be quite modest over the projection horizon, in
line with recent federal and provincial budgets. The recovery in net
exports is likely to remain weak in light of modest external demand and
ongoing competitiveness challenges, including the persistent strength
of the Canadian dollar.
The Canadian economy continues to operate with a small degree of excess
capacity. Total CPI inflation is expected to fall below 2 per cent in
the short term, as a result of lower gasoline prices, while core
inflation is expected to remain around 2 per cent.
Reflecting all of these factors, the Bank has decided to maintain the
target for the overnight rate at 1 per cent. To the extent that the
economic expansion continues and the current excess supply in the
economy is gradually absorbed, some modest withdrawal of the present
considerable monetary policy stimulus may become appropriate,
consistent with achieving the 2 per cent inflation target over the
medium term. The timing and degree of any such withdrawal will be
weighed carefully against domestic and global economic developments.
The next scheduled date for announcing the overnight rate target is 17
July 2012. A full update of the Bank's outlook for the economy and
inflation, including risks to the projection, will be published in the
MPR on 18 July 2012.
SOURCE Bank of Canada
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