Bank of Canada keeps key rate unchanged at one per cent

OTTAWA – The Bank of Canada is keeping interest rates on hold for another seven weeks, but not because the economy is doing poorly.

The bank said the economy is actually outperforming expectations, and now expects it will grow by 2.9 per cent this year. That’s half a percentage point more than the bank predicted in January.

The bank also said the economy should return to full capacity by the middle of 2012, about six months earlier than previously thought.

But the bank warns there are many potential trouble spots ahead for the economy, including the elevated price of oil and the strength of the loonie, which should restrain growth.

It expects the pace of economic growth to slow after this year to 2.6 per cent in 2012 and 2.1 per cent in 2011.

Overall inflation is a little hotter and core inflation a little cooler than expected, but it attributes that to temporary factors and said it expects both to converge at the desired two per cent target by the middle of 2012.

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