Bank of Canada holds line again on key interest rate

Bank of Canada holds line again on key interest rate
Last Updated: Tuesday, July 15, 2008 9:49 AM ET


The Bank of Canada has cut its economic growth outlook for the country this year, and left a key interest rate unchanged on Tuesday. The bank left its overnight rate - what big banks charge each other for overnight loans - steady at three per cent.

In conjunction with the interest rate decision, the bank said it expects economic growth in Canada this year of only one per cent. Growth is expected to rise to 2.3 per cent in 2009 and 3.3 per cent in 2010.

That is down from the lowered outlook the central bank offered in April, when it said it expected 1.4 per cent growth for this year. In January, the bank said it was looking for 2008 growth of 1.8 per cent.

The bank also sounded a warning over its outlook for inflation, saying that commodity prices continue to outstrip expectations.

"Assuming energy prices follow current futures prices over the projection period, total [Consumer Price Index] inflation is projected to rise temporarily above four per cent, peaking in the first quarter of 2009," the bank said.

The bank sees energy prices subsequently stabilizing and inflation is projected to return to its two per cent target in the second half of 2009.

The bank will offer more details on its outlook for the economy and inflation on Thursday, when it releases its update to the monetary policy report.

The central bank surprised many observers last month when it held the line on interest rates. Many economists had been projecting a rate cut of one-quarter of a percentage point.