Tuesday, July 17, 2012

Bank of Canada interest rate statement: July 17 2012‎

World Economic outlook - Bank of Canada interest rate statement: July 17 2012‎ : The Bank of Canada acknowledged Tuesday that the weakening global economy is slowing growth in this country more than previously thought, but it still expects moderate growth.
“Consumption and business investment are expected to be the primary drivers of growth, reflecting very stimulative domestic financial conditions” it said, but added “the slowdown in global activity has led to a sizable reduction in commodity prices, although they remain elevated.”

As widely expected, the central bank held its key interest rate at a near-historic low of 1%, where is has been since September 2010

What was surprising, however, was the wording of the bottom-line in Tuesday’s statement.

Policymakers stuck to their June script, saying “to the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

Many economics has expected the bank to tone down the language somewhat, given the deteriorating global outlook, and hinting at a longer threshold before borrowing cost will begin rising.

“While the economic expansion in the United States continues at a gradual but somewhat slower pace, developments in Europe point to a renewed contraction,” the bank said in the statement.

“In China and other emerging economies,, the deceleration in growth has been greater than anticipated, reflecting past policy tightening and weaker external demand.”

Although “global headwinds” are straining economic activity in this country, policymakers said “domestic factors are expected to support moderate growth in Canada.”

The Bank of Canada lowered its outlook for the economy, saying growth will be limited to 2.1% this year and 2.3% in 2013. That’s down from its previous forecast of 2.4% growth in both years.

It also said the economy is expected to reach full capacity in the second half of 2013.

On Monday, the International Monetary Fund issued a warning that the global economy is stumbling as the European crisis drags on and that the impact is spreading to emerging markets, as well as major economies.

Still, the IMF agreed that Canada will hold on to some of its growth potential, although not as strong as Tuesday revised forecasts from the Bank of Canada. The global lending body adjusted its outlook to 2.1% for 2012, up from 2.0% in the fund’s April estimate. Growth in 2013 was unchanged at 2.2%.

The IMF said the 17-nation eurozone will decline 0.3% this year and increase 0.7% in 2013, while the U.S is expected to grow 2.0% and 2.3% in 2012 and 2013, respectively.

Bank governor Mark Carney and his policy advisors will elaborate on its economic outlook on Wednesday when it releases its quarterly monetary policy report.

Also on Tuesday and Wednesday, Federal Reserve chairman Ben Bernanke goes before the U.S. senate banking committee. It is unlikely he will raise the possibility of another round of quantitative easing at this time, his comments will be closely watch for the Fed’s insight on the condition of the U.S. economy.

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