The Bank of Canada kept its benchmark lending rate at 0.25 per cent Tuesday, reiterating its conditional commitment to hold rates steady until the middle of 2010.
“While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly,” the bank said in announcing the rate decision.
Although recent data on GDP and inflation have diverged somewhat from projections, “the main drivers and the profile of the projected recovery in Canada remain consistent with the bank’s views,” the bank said.
The Canadian economy grew by a tepid 0.1 per cent in the third quarter, Statistics Canada reported earlier this month.
Canada’s central bank expects economic growth to become more solidly entrenched throughout 2010 and inflation to return to the two per cent target in the second half of 2011.
RBC economist Dawn Desjardins expects the central bank will raise rates by a full percentage point in the latter half of 2010, once it is more confident that the recovery is underway.
Loonie’s threat downplayed
The central bank softened its view on the impact of the strengthening currency, indicating “persistent strength in the Canadian dollar … could act as a significant further drag on growth and put additional downward pressure on inflation,” Desjardins noted in reaction to the decision.
The central bank is set to unveil its next decision on lending rates on Jan. 19, 2010.
