Bank of Canada holds rates, still sounds more optimistic than most

Unsurprisingly, Bank of Canada governor Mark Carney held the key interest rate at one per cent on Tuesday, citing concerns about the weakening global economy. In its statement accompanying the interest rate announcement, the BOC noted:

“Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions. While the U.S. economy continues to expand at a modest pace, economic activity in emerging-market economies is slowing a bit faster and a bit more broadly than had been expected. More modest global momentum and heightened financial risk aversion have reduced commodity prices.”

The Bank, however, did not appear ready to revise its outlook for the Canadian economy–which projects growth of 2.4 per cent of GDP for 2012 and 2013–saying that “underlying economic momentum appears largely consistent with expectations” and adding that “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

As CIBC’s Avery Shenfeld wrote in a note to clients, the statement was “not nearly as dovish as the market has been thinking.” The loonie appreciated against the U.S. dollar as a result.

In its April 17 statement the BOC seemed to be preparing investors for a coming interest rate hike, citing a healthier economy and rising inflation as reasons to withdraw some of the current monetary stimulus.

You can read a brief overview of how the outlook for the global economy has changed for worse between April and now on Econowatch.