January 26, 2010 - As was widely expected, the Bank of Canada held its benchmark overnight lending rate steady at 0.25 per cent. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 0.5 per cent.
With the economic recovery under way, the Bank acknowledged that the outlook for global growth was "somewhat stronger" than it had predicted in October, but stressed that this was still very much dependent on "exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems."
Economic growth in Canada turned positive in the third quarter, and is expected to have improved further in the fourth quarter, accompanied by an increase in total CPI inflation, and higher than expected core rate of inflation.
The Bank made some small changes to its forecast for this year and next, and it now sees economic growth of 2.9 per cent in 2010, down slightly from the 3.0 per cent projection in October.
For 2011, the forecast was upgraded to 3.5 per cent from 3.3 per cent last fall. The Bank says "the private sector should become the sole driver of domestic demand in 2011," which is when government stimulus is set to expire.
The Bank named a number of factors supporting Canada's economic recovery - policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade. The Bank reiterated that the strong Canadian dollar and weak U.S. demand were the main drags on the Canadian economy. As a result, growth continues to be driven more by the domestic side and less by exports.