Economic News: Bank of Canada keep key rates low

Citing the deepening European crisis, the Bank of Canada yesterday said it is maintaining its target for the overnight rate at 1%. The Bank Rate likewise stays at 1.25% and the deposit rate at 75 basis points.

Canada's central bank is expecting the European recession to be more pronounced than it earlier expected. And although U.S. growth has been stronger than anticipated, "household deleveraging, fiscal consolidation and negative spillover effects from the European crisis are all expected to weigh on U.S. growth.î

Canada, too, has enjoyed stronger growth in the second half of 2011 than forecast in October. The Bank notes solid growth in household expenditures and business investment. But it expects that in Canada, too, growth will be curtailed by the fiscal and financial issues afflicting Canada's global trading partners. "The economy
also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar,î it says.

At the present time, the Bank of Canada does not see inflation as an issue. Although slightly higher than projected, inflation is expected to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy.