cbc.ca (© Copyright: (C) Canadian Broadcasting Corporation, http://www.cbc.ca/aboutcbc/discover/termsofuse.html#Rss)
Updated: Wed, 03 Sep 2014 11:51:24 GMT | By CBC News, cbc.ca

Bank of Canada holds key interest rate at 1%



Governor of the Bank of Canada, Stephen Poloz speaks with media during a news conference Thursday June 12, 2014 in Ottawa. THE CANADIAN PRESS/Adrian Wyld The Canadian Press

Governor of the Bank of Canada, Stephen Poloz speaks with media during a news conference Thursday June 12, 2014 in Ottawa. THE CANADIAN PRESS/Adrian Wyld The Canadian Press

Canada's central bank held its key interest rate at one per cent Wednesday, the same level is has been at for four years.

In its latest policy decision, the Bank of Canada also kept its “neutral” stance, which means that governor Stephen Poloz has no plans to raise or lower rates anytime soon.

The central bank says the risks to the outlook for inflation and household debt remain the same as before.

"The balance of these risks is still within the zone for which the current stance of monetary policy is appropriate," said the bank's statement. "The bank remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks."

The rate has been at one per cent since September 2010, the longest pause in Canadian history.

Retail banks use the overnight benchmark for setting their prime lending rate, or the rate they pay to each other for short-term loans. That can affect how much interest consumers pay on things like credit card debt and mortgages.

Although the bank is stuck in neutral, Bank of Montreal chief economist Doug Porter notes the bank seems to be more positive than it has been this year.

"The economy clearly perked up in recent months, pulled along in the slipstream of an improving U.S. backdrop. The overall tone is thus slightly less dovish than recent statements," said Porter.

Exports 'turning the corner'

Growth in Canada was almost exactly in line with the bank's expectations in the second quarter. 

Last week, Statistics Canada reported the economy grew by an annualized 3.1 per cent, the strongest pace since 2011. 

Exports, which have been a consistent area of concern for Poloz, were a main driver, surging by 4.2 per cent in the quarter after declining by 0.2 per cent in the first three months of the year.

But according to the bank, "this pickup will need to be sustained before it will translate into higher business investment and hiring."

The bank says the global economy is chugging along at an expectedly mixed pace, with strong business investment driving the U.S. recovery and the situation in Ukraine weighing on Europe.   

Rate hike expected in 2015

Economists generally share the same consensus that the central bank will begin to raise it key rate next year in lockstep with the U.S. Federal Reserve. 

"The bank continues to be perfectly content biding its time until the Fed finally moves rates off the floor, and that event looks to be a mid-2015 affair," said Porter.

more video