Bank of Canada Lowers 2013 Growth Forecast, Keeping Interest Rate Stagnant

The Bank of Canada has reduced its growth forecast for 2013 on Wednesday, asserting that it has now come to the conclusion that the economy will not be getting back on its feet at least until mid-2015, i.e. almost six months later than predicted earlier this year. The announcement of the central bank indicated that it will need to keep interest rates in Canada at historically low levels well into 2014, if not beyond.

As commonly anticipated, the central bank kept its overnight trendsetting rate, which influences borrowing costs in the country, at a historic one per cent, i.e. where it has been since September 2010. Additionally, the bank made a complete U-turn on its optimistic reading for the economy of this year as it decreased its the growth forecast from 2.0 per cent to 1.5 per cent, confessing that the economy is indeed performing way below capacity. Several economists had warned Bank of Canada’s governor, Mark Carney, and his policy-setting team to give up on the bank’s tightening bias, which signals the next action rates are going to move up and not down.

However, Carney still remained persistent at his position, asserting that “with continued slack in the Canadian economy, the muted outlook for inflation and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required consistent with achieving the two per cent inflation target.”

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