Canada's Central Bank Leaves Interest Rate Unchanged

TORONTO (AP) -- The head of Canada's central bank is leaving Canada's key interest rate unchanged at 1 percent and said Wednesday a rate hike is "less imminent" than previously expected

Bank of Canada Governor Mark Carney said the global economic outlook is slightly weaker than what he projected in October. It is one of Carney's final announcements before leaving to become the governor of the Bank of England.

The central bank lowered its forecast for economic growth in Canada after underestimating the weakness of the economy in the second half of 2012. The Canadian dollar lost 0.37 of a cent to 100.37 cents U.S. after the announcement.

Peter Buchanan, a senior economist at the Canadian Imperial Bank of Commerce (NYSE: CM  ) , called it a "dovish" report that reinforces CIBC's view that the central bank won't raise rates until early 2014. TD Bank (NYSE: TD  ) chief economist Craig Alexander agreed.

"It really does push back expectations for when the Bank of Canada will raise rates. It suggests that there is a real possibility that the Bank of Canada will remain on hold all the way through this year," Alexander said.

Despite saying a rate hike less imminent, Carney still believes the next move by the central bank will be to raise rates. "The direction is clear, the timing has shifted," Carney said. "But that is still ultimate direction."

Carney kept the benchmark rate at 1 percent for the 19th straight time, but he indicated earlier this year that rates would rise soon. His announcement that rate hikes are "less imminent" is a step back from that.

Canada's commodity-rich economy has fared better than other nations in the G-7, which groups industrialized nations. There was no mortgage meltdown or subprime lending crisis in Canada, and its banks are rated among the soundest in the world. But there are fears of a housing bubble fueled by historic low interest rates. The bank has said previously household debt remains the biggest domestic threat to the Canadian economy.

"Continuing high household debt levels in Canada could lead to weaker household spending. Relatedly, if there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy," the bank said in Wednesday's policy report.

Carney, a Canadian, will become the head of the Bank of England on July 1. He is the first foreigner to be tapped for the position since the Bank of England was founded in 1694.


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