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Bank of Canada warns of 'choppy' economy


No change in rate in first policy decision since Poloz replaced Carney

The Bank of Canada opted to keep its benchmark interest rate steady at one per cent on Wednesday, the same level it's been at for almost three years.

"Growth is expected to be choppy in the near term, owing to unusual temporary factors," the bank said in a statement, "although the overall outlook is little changed from the bank's projection in … April."

Wednesday's rate announcement was the first policy decision announced since Stephen Poloz replaced Mark Carney as bank governor at the start of June.

Canada's central bank hasn't moved its benchmark lending rate since September 2010. Its next policy decision is scheduled for six weeks from now, at the start of September.

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The phrasing of the announcement was slightly different, but the ultimate impact of the Poloz era thus far looks a lot like the tail end of Carney's time — namely, that Canadians shouldn't expect interest rates to move significantly any time soon.

"As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate," the bank said.

"Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target."

That's the bank's way of suggesting it's in no hurry to raise rates until it sees signs the economy is getting significantly stronger.

Although the outlook for rates remain the same, the bank did inch up its forecast for growth in the economy slightly. The bank now expects Canada's GDP to expand by 1.8 per cent this year, up from 1.5 per cent the last time it gave a forecast.

The bank is expecting a much stronger growth rate of 2.7 per cent per year in 2014 and 2015, a figure that's slightly lower than it was saying in April.

Economists got pretty much what they were expecting from the announcement — a central bank that's in a cautiously optimistic mood, but in no particular hurry to raise rates.

"Overall, the communiqué shows that the [bank's] view of the economy has little changed since the May meeting, as expected since we believe that the arrival of Mr. Poloz as governor is unlikely to materially change the economic thinking within the Bank of Canada," Charles St-Arnaud of Nomura Securities said in a note to clients.

St-Arnaud expects the central bank to remain on the sidelines for another year, and then begin hiking in the latter part of 2014.

Source: CBC News

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