Central bank holds rate steady - Action News
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Central bank holds rate steady

The Bank of Canada opted to keep its benchmark interest rate at 0.25 per cent on Tuesday.

The Bank of Canada opted to keep its benchmark interest rate steady at 0.25 per cent on Tuesday.

Bank of Canada governor Mark Carney kept interest rates steady on Tuesday. ((Sean Kilpatrick/Canadian Press))

"Recent indicators point to the start of a global recovery from a deep, synchronous recession," the bank said in a statement accompanying the decision. "A recovery in economic activity is also under way in Canada," the bank said.

Despite the burgeoning turnaround, the bank signalled that it was not yet time for a rate increase.

The bank loosely controls interest rates in the broader economy by setting the level at which lenders obtain money themselves. Central banks across the globe began aggressively cutting interest rates beginning late last year, in a desperate attempt to stimulate the economy.

As the international economy shows signs of turning the corner, therewas some pressure to turn off the stimulus taps by raising rates and tightening the money supply.

Earlierin October,Australia did just that,becoming the first developed economy in the world to raise rates since the crisis began in late 2008.

'There's no way for the bank ... to back away from that pledge'CIBC economist Avery Shenfeld

But Canada's central bank opted not to follow suit.

In its previous report, Bank of Canada governor Mark Carney went to great pains to emphasize that the bank's commitment to maintain its overnight lending rate was "conditional".

That proviso remains in place. "Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target," the bank said Tuesday.

Effectively, the bank has offered no hints that it plans on changingcourse any time soon. "There's no way for the bank to single out some individual feature of the economy to back away from that pledge [to hold rates at 0.25 per cent]," CIBC economist Avery Shenfeldsaid in a note.

The bank did, however, temper its expectations for economic growth during the next two years. The Canadian economy is projected to grow bythree per cent in 2010 and 3.3 per cent in 2011, the bank now says.

Bank of Canada governor Mark Carneywill have another opportunity to speak his mind later in the week, when the bank unveils its latest Monetary Policy Report on Thursday. That document should provide a more detailed breakdown of the Canadian economy.