OTTAWA, Jan. 23, 2013 /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 global economic outlook is slightly weaker than the Bank had
projected in its October Monetary Policy Report (MPR). At the same time, global tail risks have diminished. The
economic expansion in the United States is continuing at a gradual
pace, restrained by ongoing public and private deleveraging, global
weakness and uncertainty related to fiscal negotiations. Despite a
marked improvement in peripheral sovereign debt markets, Europe remains
in recession, with a somewhat more protracted downturn now expected
than in October. Growth in China is improving, though economic activity
has slowed further in some other major emerging economies. Supported by
central bank actions and by positive policy developments in Europe,
global financial conditions are more stimulative. Commodity prices
have remained at historically elevated levels, though temporary
disruptions and persistent transportation bottlenecks have led to a
record discount on Canadian heavy crude.
In Canada, the slowdown in the second half of 2012 was more pronounced
than the Bank had anticipated, owing to weaker business investment and
exports. Caution about high debt levels has begun to restrain household
spending. The Bank expects economic growth to pick up through 2013.
Business investment and exports are projected to rebound as foreign
demand strengthens, uncertainty diminishes and the temporary factors
that have weighed on resource sector activity are unwound. Nonetheless,
exports should remain below their pre-recession peak until the second
half of 2014 owing to a lower track for foreign demand and ongoing
competitiveness challenges, including the persistent strength of the
Canadian dollar. Consumption is expected to grow moderately and
residential investment to decline further from historically high
levels. The Bank expects trend growth in household credit to moderate
further, with the debt-to-income ratio stabilizing near current levels.
Relative to the October MPR, Canadian economic activity is expected to
be more restrained. Following an estimated 1.9 per cent in 2012, the
economy is expected to grow by 2.0 per cent in 2013 and 2.7 per cent in
2014. The Bank now expects the economy to reach full capacity in the
second half of 2014, later than anticipated in the October MPR.
Core inflation has softened by more than the Bank had expected, with
more muted price pressures across a wide range of goods and services,
consistent with the unexpected increase in excess capacity. Total CPI
inflation has also been lower than anticipated, reflecting developments
in core inflation and weaker-than-projected gasoline prices. Total CPI
inflation is expected to remain around 1 per cent in the near term
before rising gradually, along with core inflation, to the 2 per cent
target in the second half of 2014 as the economy returns to full
capacity and inflation expectations remain well-anchored.
Reflecting all of these factors, the Bank has decided to maintain the
target for the overnight rate at 1 per cent. While some modest
withdrawal of monetary policy stimulus will likely be required over
time, consistent with achieving the 2 per cent inflation target, the
more muted inflation outlook and the beginnings of a more constructive
evolution of imbalances in the household sector suggest that the timing
of any such withdrawal is less imminent than previously anticipated.
The next scheduled date for announcing the overnight rate target is 6
March 2013. The next full update of the Bank's outlook for the economy
and inflation, including risks to the projection, will be published in
the MPR on 17 April 2013.
SOURCE: Bank of Canada
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