Persistent economic malaise beyond Canada’s borders continues to force Bank of Canada Governor Mark Carney to hold off on any increase in interest rates to head off a burst of consumer price inflation. The central bank kept its influential overnight rate at 1 per cent Wednesday.
The rate has remained unchanged since 2010 and, barring an unexpected shift in global conditions, consumers and business borrowers can expect Carney to wait until next year to begin pushing up Canadians’ borrowing costs.
In a statement, the bank pointed to a “slowing of activity across advanced and emerging economies” as the main global trend.
“The economic expansion in the United States continues at a gradual pace. Europe is in recession and its crisis, while contained, remains acute,” Carney’s statement said.
“In China and other major emerging economies, growth is decelerating somewhat more quickly than expected from previously-rapid rates, reflecting past policy tightening, weaker external demand, and the challenges of rebalancing towards domestic sources of growth.”
Domestically, the bank said the economy is being slowed by global conditions but will expand in 2013. He said inflation, which has been lower than expected in recent months, will return to the central bank’s target of 2 per cent over the next year as Canada’s economy near its production potential.
Carney continued to provide a cautious reminder that the current historically low interest rates will have to rise at some point in the future. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term,” the bank said. But, it added, “The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”
Carney, who made headlines by accusing corporate executives of sitting on large profits rather than re-investing them, went out of his way to stress that business investment “remains solid” and, along with consumer spending, will be a main driver of economic growth in the months ahead.
Also, the bank said “there are tentative signs of slowing in household spending, although the household debt burden continues to rise.”
The next scheduled date for announcing the overnight rate target is Oct. 23