OTTAWA (Reuters) - The Bank of Canada held its key overnight interest rate at 1 percent on Tuesday but said that a stronger-than-expected second half of 2011 meant the Canadian economy should reach full capacity three months earlier than it had projected.
It gave no new hint of a planned rate hike, repeating what it said in its December rate decision that there is considerable monetary policy stimulus in Canada and saying that the overall outlook for the Canadian economy is little changed from October.
Nonetheless, it said the economy is expected to return to full capacity and inflation return to its 2 percent target by the third quarter of 2013, one quarter sooner than forecast in the October Monetary Policy Report (MPR).
It saw the economy growing by 2.4 percent in 2011, 2.0 percent in 2012 and 2.8 percent in 2013. Its estimates for 2011 and 2012 are higher than previously forecast but 2013 is slightly lower.
The quicker return to full capacity did not necessarily mean an imminent rate hike, judging by the central bank's pronouncements over the past several months. Its July MPR had s aid that because of economic headwinds the policy rate could deviate from its long-run level even if inflation is at target and output is at potential."
The bank has held its rate unchanged for 16 months, the longest pause on record since it began targeting the overnight rate in 1994.
(SOURCE:Reporting by Louise Egan and Randall Palmer)
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