The Bank of Canada keeps benchmark interest rate at 1%

On Tuesday, The Bank of Canada kept its benchmark interest rate at 1%, while the central bank warned that Canada’s economy is doing somewhat better than earlier projected but will quickly change.

"Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis," Bank of Canada Governor Mark Carney said Tuesday.

The Bank of Canada’s objective for the overnight rate is the rate at which banks borrow for short-term loans. A number of other interest rates in the market are dependent on it, so it is the central bank’s finest tactic for tightening or loosening the economy.

"The weaker external outlook is expected to dampen GDP [gross domestic product] in Canada through financial, confidence and trade channels," the bank said.

"The economy also continues to face competitiveness challenges, including persistent strength of the Canadian dollar…. Reflecting all of these factors, the bank has decided to maintain the target for the overnight rate at one per cent."

The bank continues to predict total and core inflation to decrease as the output gap persists well into 2013.

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