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Apr 20, 2010 - Bank of Canada maintains overnight rate target at 1/4 per cent; removes con
Bank of Canada Press Release: OTTAWA —The Bank of Canada today announced that it
is maintaining its target for the overnight rate at 1/4 per cent. The
Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per
cent.
Global economic growth has been somewhat stronger than projected,
with momentum in emerging-market economies increasing noticeably.
Exceptional stimulus from monetary and fiscal policies continues to
provide important support in many countries. The recovery in the major
advanced economies is still expected to be relatively subdued,
reflecting ongoing balance sheet adjustments and the gradual withdrawal
of fiscal stimulus commencing later this year. Despite recent
progress, considerable uncertainty remains about the durability of the
global recovery.
In Canada, the economic recovery is proceeding somewhat more rapidly
than the Bank had projected in its January Monetary Policy Report
(MPR). The profile for growth is more front-loaded than that
presented in the January MPR. The Bank now projects that the economy
will grow by 3.7 per cent in 2010 before slowing to 3.1 per cent in
2011 and 1.9 per cent in 2012.
This profile reflects stronger near-term global growth, very strong
housing activity in Canada, and the Bank’s assessment that policy
stimulus resulted in more expenditures being brought forward in late
2009 and early 2010 than expected. At the same time, the persistent
strength of the Canadian dollar, Canada’s poor relative productivity
performance, and the low absolute level of U.S. demand will continue to
act as significant drags on economic activity in Canada. The Bank
expects the economy to return to full capacity in the second quarter of
2011.
The outlook for inflation reflects the combined influences of
stronger domestic demand, slowing wage growth, and overall excess
supply. Core inflation, which has been somewhat firmer than projected
in January, is expected to ease slightly in the second quarter of 2010
as the effect of temporary factors dissipates, and to remain near 2 per
cent throughout the rest of the projection period. Total CPI inflation
is expected to be slightly higher than 2 per cent over the coming
year, before returning to the target in the second half of 2011.
In response to the sharp, synchronous global recession, the Bank
lowered its target rate rapidly over the course of 2008 and early 2009
to its lowest possible level. With its conditional commitment
introduced in April 2009, the Bank also provided exceptional guidance
on the likely path of its target rate. This unconventional policy
provided considerable additional stimulus during a period of very weak
economic conditions and major downside risks to the global and Canadian
economies. With recent improvements in the economic outlook, the need
for such
extraordinary policy is now passing, and it is appropriate to begin
to lessen the degree of monetary stimulus. The extent and timing will
depend on the outlook for economic activity and inflation, and will be
consistent with achieving the 2 per cent inflation target.
In accordance with the removal of the conditional commitment, there
will be no additional term Purchase and Resale Agreements issued by the
Bank.
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 22
April 2010. The next scheduled date for announcing the overnight rate
target is 1 June 2010.
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