Bank of Canada stands pat on key interest rate

TheBank of Canada madeno change in its keypolicy interest rate thismorning as expected, leaving it atthe one per cent levelit hasbeen at for the past three years.

The central bank said low interest rates will remain "appropriate" as long as inflation and growth in Canada remain subdued.

The bank noted that the global economy continues to expand, but its "dynamic has moderated," saying that recent data suggested "slightly less momentum overall"in the U.S. than anticipated.

But it said financial volatility has increased in a number of emerging economies, with the notable exception of China, which it says is still showing "solid" economic growth.

The Bank of Canada also noted thatthe housing sector has been "slightly stronger than anticipated," andsaid household credit growth has continued to slow in the presence of highermortgagerates.

The policy statement the bank released along with its rate decision was similar in tone tothe last one in July.

No rate rise likely for a year

Currently, markets are widely expecting no change in the key overnight lending rate for at least another year.

"The bottom line is that we are still looking at a very long period of inactivity by the Bank [of Canada], and may well be talking about four years of unchanged rates a year from now," said Douglas Porter, BMO Capital Markets chief economist,in a commentary.

"Officially, we are looking for the Bank to start raising rates in [the third quarter of] 2014, but that is contingent on our view that the U.S. economy will pick up meaningfully in coming quarters," he said.

Economists at some other bank investment firms like CIBC World Markets and Scotia Capital Markets don't expect a hike in the overnight lending rate until early 2015.

The Canadian dollar rose a third of a centandclosed Wednesday at 95.31 cents US.

Wednesday marked the second rate policy announcement that new Bank of Canada governor Stephen Poloz has presided over since taking over in June. So far, he hasn't strayed fromthe monetary policy track set by his predecessor, Mark Carney.

Poloz told a House of Commons committee in June that he foresawno shift from the current low interest rate policy under his leadership, at least in the short term, despite fears it is creating imbalances in the economy.

Although keeping rates low for a long period has a distorting impact on the economy, including triggering excessive borrowing, Poloz said the central bank must also consider the risk to the fragile economy of raising rates too soon.

Rates are unlikely to rise in the presence of weak growth both domestically and internationally.Statistics Canada reported last weekthat growth in the second quarter slowed to an annualized rate of 1.7 per cent.