NEWS

Central bank remains in neutral on rates

06/05/2012 10:16 EDT | Updated 08/05/2012 05:12 EDT

Canada's central bank is keeping its benchmark interest rate steady at one per cent — the same level since September 2010.

The Bank of Canada said Tuesday it would hold its target for the overnight rate steady in its latest policy decision.

The bank has decided not to raise or lower the rate on which other banks base many of their interest rates for 14 consecutive six-week policy meetings, dating back to fall 2010. That's the longest that Canada's central bank has stayed on the sidelines since the 1950s.

"Underlying economic momentum appears largely consistent with expectations," the bank said in its statement accompanying the decision.

"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," the bank said.

That was a slightly different tone that the previous statement, suggesting if and when the bank makes a move, it's more likely to be a hike to curb lending, not a cut to stimulate the economy.

"The message is that the bank, unlike the market, still expects the next move to be a hike, but it is acknowledging that there is less certainty about the economy being strong enough to warrant that move," CIBC economist Avery Shenfeld said in a note following the bank's rate announcement.

Modest growth

Scotiabank economist Derek Holt said Bank of Canada Governor Mark Carney had no choice but to hold off. The bank governor did not completely reverse course, but that may be forthcoming in the next statement in July, Holt said.

"In a perfect world the bank would be raising rates right now," he said. "But the geopolitical turn of events and as well as the domestic softens in sectors outside of housing won't allow them to do so."

Canada's central bank says the U.S. economy has continued to expand at a modest pace, but activity in emerging markets has slowed a bit faster than expected, and Europe remains a major concern.

In Canada, the first-quarter growth rate was disappointing at 1.9 per cent, but the economy is holding up overall because of a strong housing sector, positive business, and consumer confidence and low interest rates.

The bank also said inflation remains in control and not a worry at this time. The bank has its next scheduled decision on rates on July 17.

MORE:cbcNews