OTTAWA - The Bank of Canada is keeping short-term interest rates unchanged, signalling to markets it will maintain borrowing costs at historic low levels for the near future in light of the worsening global and domestic economies.
As expected, the central bank kept its benchmark overnight rate at one per cent on Wednesday — where it's been for a year — for yet another policy-setting date.
Nor was there a hint in the accompanying statement that the bank may be thinking of cutting interest rates further, as suggested by some economists.
A key focus in the announcement is on how much more darkly the bank's governing council sees the gathering economic and financial storm confronting the world.
The global outlook has "deteriorated in recent weeks," it says. The European sovereign debt crisis has intensified, global growth has slowed and financial market volatility has risen "sharply." New data also shows the U.S. recession was deeper than previously thought and the recovery is shallower, and will be impeded further as Washington starts withdrawing stimulus.
The good news in the stark statement is that the bank's governors do not believe a second recession is in the offing, at least in Canada. It says the second quarter stall was due mainly to temporary factors.
"The bank continues to expect that growth will resume in the second half of this year," it says, "led by business investment and household expenditures, although lower wealth and incomes will likely moderate the pace of investment and consumption growth."
As well, "net exports are now expected to remain a major source of weakness, reflecting more modest global demand and ongoing competitiveness challenges, in particular the persistent strength of the Canadian dollar."
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