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Bank of Canada keeps key interest rate at 1%

Published December 4 by


The Bank of Canada today maintained its benchmark interest rate at one per cent, the same level it has been at for more than two years.

The benchmark is the rate at which retail banks and other lenders set their borrowing rates for consumers.

It marks the 18th consecutive policy meeting that the bank has opted to stand pat, but the first since Bank of Canada governor Mark Carney announced last week he will leave his post next year to head England's central bank.

That's the longest stretch that Canada's monetary policy has gone unchanged since the 1950s.

No change expected

Tuesday's move was also in line with what economists were expecting, as Canada's economy continues to eke out sluggish growth — not enough to warrant a rate hike to slow things down, but also not poor enough to require a rate cut to get things flowing again.

The loonie rallied slightly on the announcement, gaining about a fifth of a cent to trade just above parity with the U.S. dollar, at 100.08 cents US.

The bank's statement Tuesday acknowledged the economy is weaker than it expected, but suggested it is mostly looking through the soft patch as a temporary aberration.

Last week, Statistics Canada reported the country's gross domestic product output had slowed to 0.6 per cent — about half what the bank had predicted in October, and the weakest result in more than a year.

"Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013," the bank stated.

BMO economist Doug Porter said he didn't expect the bank to do much, especially against the backdrop of ongoing fiscal cliff discussions in the U.S.

"I think the bank is hedging their bets on the expected upturn of the Canadian economy," Porter explained.



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