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Updated: Wed, 23 Oct 2013 12:01:45 GMT | By CBC News, cbc.ca

Bank of Canada slashes economic growth forecast



Bank of Canada Governor Stephen Poloz pauses while speaking to the Vancouver Board of Trade in Vancouver, on Wednesday, September 18, 2013. Jimmy Jeong/Canadian Press

Bank of Canada Governor Stephen Poloz pauses while speaking to the Vancouver Board of Trade in Vancouver, on Wednesday, September 18, 2013. Jimmy Jeong/Canadian Press

The Bank of Canada has held its key interest rate at one per cent and cut its outlook for economic growth to 1.6 per cent this year, 2.3 per cent in 2014 and 2.6 per cent in 2015, a sizable downgrade from its July outlook.

In its monetary policy report released today by governor Stephen Poloz, the bank says it sees the economy returning to full capacity by the end of 2015.

The statement also removes the bank’s warning that a rate hike is inevitable, a "major turn in guidance," according to Andrew Pyle, senior wealth adviser and portfolio manager at Scotia McLeod.

"There is clearly not enough confidence in the U.S. or global economy to push export growth and the Bank is also more concerned about a potential correction in the housing sector because of the continued ramp-up in prices," Pyle said in a note to investors.

The Bank of Canada says softer-than-expected U.S. growth pushed the full recovery of the economy later, but that it expects "a better balance between domestic and foreign demand will be achieved over time and that economic growth will become more self-sustaining".

In its July report, the bank had predicted the Canadian economy would grow 1.8 per cent this year, followed by 2.7 per cent in 2014 and 2015, returning to full capacity in mid-2015.

The report sent the Canadian dollar plummeting, down 0.93 cents against the U.S. dollar to 96.27 cents US in mid-morning trading.

That won't be the end, according to Pyle, who says he sees the Canadian dollar falling to 92 cents US within a month, and that he believes Poloz is attempting to push the dollar down to boost exports.

The lower economic outlook and stubbornly low inflation mean the Bank of Canada is likely to hold interest rates for at least another two years, Pyle says.

TD Bank says it now believes rates will stay unchanged until 2015, according to commentary by economist Diana Petramala.

“Interest rate hikes will be gradual and dependent on economic performance and financial conditions going forward, with the bank keeping a close eye on the evolution of domestic risks,” Petramala says.

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