Strong Dollar; Low Productivity in Canada:  Interest Rates Stay Put

The Governor of the Bank of Canada, Mark Carney, spoke at a press conference in Ottawa on January 19, 2011. He discussed several factors that caused the Bank to maintain its target for the overnight rate at 1%.

• The economic recovery, although proceeding more quickly than anticipated, still has associated risks and challenges. Although private domestic demand in the U.S. has grown, financial stability and sovereign debt issues in Europe continue to be of concern.

• In Canada, household debt is expected to restrict consumption and residential investment but business investment should continue to grow. The strong Canadian dollar and low productivity will continue to dampen the recovery here.

• The inflation target remains at 2%. Upside risks include higher commodity prices and unexpected momentum in the housing sector. Downside risks include weak Canadian competitiveness and muted household spending.

• The Bank expects the economy to return to full capacity by the end of 2012.

The next scheduled announcement date to announce the overnight target is March 1, 2011.

ADDITIONAL EDUCATIONAL RESOURCES: Distinguished Advisor Workshop Reference Journal, now available in the Knowledge Bureau bookstore.