Press Releases
2011
FOR IMMEDIATE RELEASE
18 January 2011 CONTACT: Jeremy Harrison
613 782-8782
Bank
of Canada maintains overnight rate target at 1 per cent
OTTAWA –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 per
cent.
The global economic recovery is proceeding at a somewhat faster pace
than the Bank had anticipated, although risks remain elevated. Private
domestic demand in the United States has picked up and will be
reinforced by recently announced monetary and fiscal stimulus. European
growth has also been slightly stronger than anticipated. Ongoing
challenges associated with sovereign and bank balance sheets will limit
the pace of the European recovery and are a significant source of
uncertainty to the global outlook. In response to overheating, some
emerging markets have begun to implement more restrictive policy
measures. Their effectiveness will influence the path of commodity
prices, which have increased significantly since the October Monetary
Policy Report (MPR), largely reflecting stronger global growth.
The recovery in Canada is proceeding broadly as anticipated, with a
period of more modest growth and the beginning of the expected
rebalancing of demand. The contribution of government spending is
expected to wind down this year, consistent with announced fiscal
plans. Stretched household balance sheets are expected to restrain the
pace of consumption growth and residential investment. In contrast,
business investment will likely continue to rebound strongly, owing to
stimulative financial conditions and competitive imperatives. Net
exports are projected to contribute more to growth going forward,
supported by stronger U.S. activity and global demand for commodities.
However, the cumulative effects of the persistent strength in the
Canadian dollar and Canada’s poor relative productivity
performance are restraining this recovery in net exports and
contributing to a widening of Canada’s current account
deficit to a 20-year high.
Overall, the Bank projects the economy will expand by 2.4 per cent in
2011 and 2.8 per cent in 2012 – a slightly firmer profile
than had been anticipated in the October MPR. With a little more excess
supply in the near term, the Bank continues to expect that the economy
will return to full capacity by the end of 2012.
Underlying pressures affecting prices remain subdued, reflecting the
considerable slack in the Canadian economy. Core inflation is projected
to edge gradually up to 2 per cent by the end of 2012, as excess supply
in the economy is slowly absorbed. Inflation expectations remain
well-anchored. Total CPI inflation is being boosted
temporarily by the effects of provincial indirect taxes, but is
expected to converge to the 2 per cent target by the end of 2012.
Reflecting all of these factors, the Bank has decided to maintain the
target for the overnight rate at 1 per cent. This leaves considerable
monetary stimulus in place, consistent with achieving the 2 per cent
inflation target in an environment of significant excess supply in
Canada. Any further reduction in monetary policy stimulus would need to
be carefully considered.
Information note:
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 19 January 2011. The next scheduled date for announcing the
overnight rate target is 1 March 2011.