Uncertainty about the world economy, especially the crisis in Europe, left little choice for the Bank of Canada, but to leave its target for the overnight rate at 1 per cent – the 10th consecutive meeting the Bank has left the rate alone.
“Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis. The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October, as a result of increased deleveraging and tighter financial conditions, as well as necessary fiscal austerity and structural reforms,” said the Bank in a statement.
Bank of Canada Govenor Mark Carney said recent economic data suggest that growth in the United States has been slightly more robust than anticipated, largely as a result of continued vigour in consumer spending and business investment. “Nonetheless, household deleveraging, fiscal consolidation and negative spillover effects from the European crisis are all expected to weigh on U.S. growth.”
On the home front, the central bank noted that while the Canadian economy shows signs of stronger growth, this may be slowed by external forces.
“Household expenditures have more momentum than had been expected and business investment remains solid,” said the Bank. “Going forward, the weaker external outlook is expected to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar.
“With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada,” stated Carney. “The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks.”
The Bank also stated that it continues to expect the inflation rate to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy.