Responding to global economic uncertainty and stalled Canadian economic growth, the Bank of Canada announced this morning that it’s maintaining its target overnight rate at 1%.
“The European sovereign debt crisis has intensified, a broad range of data has signaled slower global growth, and financial market volatility has increased sharply,” the bank’s statement noted, highlighting a deteriorating global economic outlook in recent weeks.
It added that recent benchmark revisions have shown the U.S. recession was deeper and its recovery shallower than previously reported, and that the country’s growth will thus likely be weaker than previously anticipated.
“The bank expects that American household spending will be even more subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions.”
On the European front, the bank stated that “acute fiscal and financial strains in Europe have triggered a generalized retrenchment from risk-taking and could prompt more severe dislocations in global financial markets.”
On a more positive note, growth in emerging-market economies has been robust. But the Bank of Canada cautioned that “its rate and composition will be affected by weakness in major advanced economies.”
In Canada, the bank noted that Canadian economic growth has stalled in the second quarter, “due to temporary factors.”
“The bank continues to expect that growth will resume in the second half of this year, led by business investment and household expenditures, although lower wealth and incomes will likely moderate the pace of investment and consumption growth.”
It noted a positive supply and price of credit, but commented that financial conditions in Canada have tightened somewhat and could tighten further if global financial conditions continue to deteriorate.
It noted that net exports are expected to remain a major source of weakness, given the strong Canadian dollar and more modest global demand.
The slowing global economic momentum and heightened uncertainty, it said, have diminished the bank’s need to withdraw monetary policy stimulus.
“The bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2% inflation target over the medium term.”
Jenny Wagler
Twitter: JennyWagler_BIV