Even though the Bank of Canada has improved its growth forecast for the Canadian economy, it has decided to leave the overnight lending rate as is for now. The key lending rate has remained unchanged at one per cent since Sept. 2010.
In a statement released earlier this week, the central bank said, “This leaves considerable monetary stimulus in place, consistent with achieving the 2 percent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.”
For the time being, pressure to increase the key lending rate may have been eased by the governments announcement of tighter mortgage restrictions, this past Monday.
Improving on growth forecasts released last October, the bank now expects the Canadian economy to grow at a rate of 2.4 per cent this year and 2.8 per cent the next.
“With a little more excess supply in the near term, the Bank continues to expect that the economy will return to full capacity by the end of 2012,” the BoC noted.
The Bank of Canada will release its next interest rate announcement on March 1, 2011 and at the moment, forecasters are split as to what will happen next. Looking south at the strengthening U.S. economy, some say rates could nudge up a quarter point as early as May. Others say, given the still-high jobless rate in the U.S. and the ongoing European debt crisis, the central bank should hold off as long as possible.