BoC hints at rate hike

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The Bank of Canada announced Wednesday it will maintain its overnight rate at 1 per cent, also hinting at the future withdrawal of that stimulus.

“In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy’s production potential,” writes the Central Bank in its rate review statement. “Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions.”

The current conditions, at least globally, don’t paint quite so rosy a picture.

The bank points to “widespread slowing of activity across advanced and emerging economies,” a plodding U.S. economy and a recession-rife Europe.

On the whole, those factors will continue to act as a drag on any growth in the domestic economy, argues the review statement. It’s also pointing to positive slowing in consumer debt levels.

“There are tentative signs of slowing in household spending, although the household debt burden continues to rise,” according to the report. “Canadian exports are projected to remain below their pre-recession peak until the beginning of 2014, reflecting the dynamics of foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.”

Still, the bank is reiterating its willingness to increase its overnight rate as soon as possible. Most analysts say that move won’t come before the second quarter of 2013.

“To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate,” says the BoC review. “The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”
 

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