The Bank of Canada kept its benchmark interest rate at a record low, and said the stronger Canadian dollar is slowing a recovery that has been quicker than policy makers expected.
All 23 economists surveyed by Bloomberg News predicted Governor Mark Carney would keep the target rate for overnight loans between commercial banks at 0.25 percent. The central bank also reiterated a plan to keep that rate unchanged through June 2010, and made no comment on further credit-market stimulus.
“Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth,” the Bank of Canada said in a statement today. “However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.”
The bank now expects the economy to shrink by 2.3 percent, less than the April forecast for a 3 percent contraction. Recent figures signal the economy has already started growing again, the bank said. The bank also said inflation will return to its 2 percent target three months sooner than earlier projected, and that the global economy shows signs of a “nascent” recovery.
“Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010,” the Bank of Canada said. Consumer prices will climb by 2 percent in the second quarter of 2011, instead of the earlier prediction that would happen in the third quarter of that year.
The Canadian currency advanced 0.5 percent to C$1.1002 per U.S. dollar at 9:02 a.m. in Toronto, from C$1.1062 yesterday.
‘Still Serious Recession’
“We haven’t shaken off the shackles of the recession yet, so it’s a little bit early to send the all-clear signal,” Doug Porter, deputy chief economist with BMO Capital Markets in Toronto, said before the report. “This is still a very serious recession.”
At the last rate decision June 4, policy makers said the stronger currency could “fully offset” signs of a recovery after the Canadian dollar saw its biggest monthly gain in more than 50 years in May. Yesterday, it traded near the level where the bank noted its concern.
The stronger currency makes Canada’s factory goods less competitive, in a year where the bankruptcies of General Motors Corp. and Chrysler Group LLC shut Canadian plants, dealers and parts suppliers. Factory sales have dropped by 29 percent since last July, and manufacturers fired 221,500 workers in the 12 months through June, an 11 percent drop.
Exports will fall 21 percent this year, the government’s export financing agency said July 9.
‘Glass of Wine’
“There is still some skepticism in the consumers,” said William Lane, chief financial officer at Imvescor Inc. in Moncton, New Brunswick, which operates restaurant chains including Baton Rouge and Mikes. “Our customers keep coming, but maybe they decide to have a glass of wine instead of a bottle.”
There have been signs this month the Canadian economy is picking up. Reports showed employment fell by less than economists expected, and the economy posted larger-than-expected gains in building permits, business spending and housing starts.
Canada’s economy will grow 3 percent next year and 3.5 percent in 2011, the central bank said. The old predictions were 2.5 percent and 4.7 percent, respectively.
There was no direct mention today of any plan to use so- called quantitative easing, where the central bank creates new dollars and purchases assets to try to encourage new lending.
“The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates,” the statement said.
The central bank separately announced it is reducing the size of its three programs of temporary purchases of securities from major bond market dealers and other investors to ease credit markets. Bond dealers declined to take up all of the central bank’s liquidity offerings for the first time in 43 regular term PRA auctions last week, a sign that conditions in credit markets are easing.
To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.
No comments:
Post a Comment