The Bank of Canada has decided to leave the overnight lending rate at one percent. It will also keep the deposit rate at .75 percent and the Bank Rate at 1.25 percent. This is due to the weakening of global growth prospects since the Monetary Policy Report, or MPR, was published by the bank last April.
The recovery in the United States is going slowly, but in a positive direction. But, the economic outlook in Europe is causing some concern of a relapse of sorts. China has seen a larger than anticipated deceleration in growth, creating less of a demand for imports. All told, this has reduced the prices of most commodities, even though they remain high. There is a possibility of global excess capacity moderating those commodity prices even more. So far, the projections of the Bank of Canada assume that the European market will be able to contain its crisis.
While the global situation has tempered the Canadian economy somewhat, on the domestic front it is expected to see some moderate growth. The Bank of Canada expects things to stay steady until 2013 and then pick up. Business investment and consumer use are expected to be the primary growth drivers, tempered somewhat by the global situation. The housing market, now at near record levels, is expected to cool somewhat. Government spending is expected to be moderate. Exports are expected to be slow until early 2014, affected by global demand and a strong Canadian dollar.
As far as figures, the Bank of Canada is expecting that in 2012, Canada’s economy will increase by 2.1 percent, in 2013 by 2.3 percent and in 2014 by 2.5 percent. The current economy is expected to peak by mid 2013. It is also expected that core inflation will stay at roughly two percent for the near future, as long as things within Canada remain stable. The Bank of Canada also expects that the total CPI inflation will remain below two percent through 2012 and into the mid year of 2013.
After looking at all these factors, the Bank of Canada decided not to raise its rates. If Canada’s economic expansion remains as is and the surpluses in supply are absorbed, it may be necessary for a moderate stimulus withdrawal. All items will be considered before raising rates. A full report is due out this coming week on MPR.