Bank of Canada keeps interest rate at 1 per cent

Bank of Canada Governor Stephen Poloz makes clear that as long as considerable slack remains in the economy, inflation remains muted and household finances continue to improve, he intends no changes in interest rates.

OTTAWA—Newly-appointed Bank of Canada Governor Stephen Poloz held the bank’s trend-setting overnight rate at 1 per cent and signaled that consumers and homebuyers need not worry about borrowing costs shooting up anytime soon.

Poloz, who took over from Mark Carney at Ottawa’s central bank last month, said global business conditions remain modest and Canada’s “economic growth is expected to be choppy in the near term.”

The bank cited the unknown negative economic impact of a string of disasters, including flooding in Calgary and Toronto and the devastating train accident in Quebec.

With the Canadian economy not expected to be firing on all cylinders until mid-2015, Poloz had not been expected to deviate quickly from Carney’s low-rate policy. The central bank has kept its overnight rate, which influences the borrowing costs charged by commercial banks, unchanged at 1 per cent since 2010.

  • Bank of Canada governor says economic confidence will grow

    Bank of Canada governor says economic confidence will grow

Poloz noted in the bank’s rate-setting announcement Wednesday that interest rates would eventually move back up. But the central bank is unlikely to set that trend in motion until economic growth picks up enough to threaten a burst in inflation many months from now.

The bank predicted Canadian economic expansion in 2013 would come in at 1.8 per cent. While lacklustre, that’s a slight upgrade from the prediction in April, which called for growth of 1.5 per cent this year. For next year, the bank expects an improved growth rate of 2.7 per cent. However, the central bank’s forecasts have often proved overly optimistic in recent years as gloomy global conditions dragged down Canada’s economy.

Exports, which have been a weakness for Canada since the 2008-09 recession, are expected to “gather momentum” in the near future as the U.S. economy improves, Poloz predicted. This “should boost confidence and lead to increasingly solid growth in business investment,” the bank said. A mediocre pace of business investment has been a continuing weakness as Canada tries to shed the impact of the recession and return to more robust economic growth.

The next scheduled date for announcing the overnight rate target is Sept. 4.

In June, Poloz, 57, replaced Carney, who left Canada’s central bank to take over as head of the Bank of England.

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