Bank of Canada Governor Mark Carney held the key overnight interest rate steady at 1 per cent

Bank of Canada Governor Mark Carney held the key overnight interest rate steady at 1 per cent on Wednesday, and lowered growth expectations for 2013 citing global and domestic economic challenges.

Carney said Canada's economy experienced more of a slowdown than expected in the second half of 2012, and going forward "economic activity is expected to be more restrained."

"The Bank now expects the economy to reach full capacity in the second half of 2014, later than anticipated in October," Carney said, reading from the bank's quarterly Monetary Policy Report.

The bank also revised its 2.3 per cent growth estimate for 2013 down to 2 per cent, followed by 2.7 per cent in 2014.

 

Carney didn't say when the bank expects to raise its overnight lending rate. However, he said some "modest withdrawal" of stimulus is expected though any such move is "less imminent than previously anticipated."

"We'll adjust monetary policy, including guidance, as appropriate in order to meet our (2 per cent) inflation target," Carney told reporters.

The bank's statement said global economic winds continue to buffet the Canadian economy. Growth in the U.S. has been restrained by uncertainty around fiscal cliff negotiations, while Europe remains in recession and economic recovery there appears further off than it did in October.

China's economic growth remains a bright spot, the bank said, though some other major emerging economies are experiencing further slowdowns.

Domestically, the bank said weaker business investment and exports resulted in slower-than-forecast growth in the second half of 2012.

High debt levels -- which Carney has warned Canadians to be wary of in recent months -- also resulted in restrained household spending, the statement said.

The bank expects Canada's economic growth to pick up in 2013, though exports will remain below pre-recession levels until 2014, largely due to faltering international demand and the ongoing strength of the Canadian dollar.

"Business investment and exports are projected to rebound as foreign demand strengthens, uncertainty diminishes and the temporary factors that have weighed on resource sector activity are unwound," the statement said.

The central bank said core inflation in Canada has softened more than expected, sitting at around 1 per cent, where it is expected to remain for the "near term" before rising to the target rate of 2 per cent in the second half of 2014.

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