Bank of Canada Holds Rate, Downgrades Forecast

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1%, citing a global economy that has “slowed markedly” and that the “outlook for the Canadian economy has weakened since July.”

Overall, the Bank expects that growth in Canada will be slow through mid-2012 before picking up as the global economic environment improves, uncertainty dissipates and confidence increases.  The Bank projects that the economy will expand by 2.1% in 2011, slow to 1.9% cent in 2012, before rebounding to 2.9% in 2013.

The weaker economic outlook implies greater and more persistent economic slack than previously anticipated, with the Canadian economy now expected to return to full capacity by the end of 2013.

Big 5 bank commentary to come…

TD Bank
“Today’s communiqué essentially reiterated the more dovish tone of September’s rate announcement. It is also consistent with our call for the Bank of Canada to leave interest rates unchanged until the first quarter of 2013.

The Bank reminded markets that Canada has a target rate near historic lows, a well-functioning financial system and considerable monetary policy stimulus.This should quiet any talk of rate cuts, which markets had started to price in during the worst of the recent market turmoil. However, in removing any reference to the withdrawal of monetary stimulus, markets have initially interpreted the statement as more dovish.

All told, today’s statement confirms our view that given the downgraded global growth outlook, and greater economic slack in the Canadian economy than previously expected, interest rates will need to remain accommodative for quite some time. Our Bank of Canada call implies a flat overnight rate for over two years –an unprecedented situation which underscores the fragility of the economic recovery.”

Royal Bank

“Today’s rate announcement and statement were a bit more aggressive than we expected in terms of the degree of the downgrade to growth. Still, expectations that growth will reaccelerate in the second half of 2012 and continue at a decent clip in 2013 provide little reason to alter our expectation that the Bank’s next move will be a rate hike, yet given the current heightened level of uncertainty and prospect of sub-par global growth, the first increase is not likely until the third quarter of 2012.”

Scotia

“This is a very dovish take on the outlook by the BoC that signals no change in monetary policy at least for the rest of this year and throughout next year. In my opinion, it poses the likelihood of taking out the Scotia Economics print forecast for the resumption of rate hikes by September 2012 and pushes it well into 2013”

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