As expected, the bank's policy-setting panel headed by governor Mark Carney kept the trendsetting interest rate at one per cent on Wednesday, the same level it's held for the past two years.
And while Carney left his tightening bias unchanged — meaning the next move will likely be to raise rates — his suggestion that low interest rates are at least partly responsible for keeping Canada's economic head above water in the face of global turbulence hinted at continuing that policy.
"In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy's production potential," the bank said in an accompanying statement.
"Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions."
The bank kept the tightening bias language unchanged.
"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, consistent with achieving the two per cent inflation target over the medium term."
But CIBC chief economist Avery Shenfeld said with the trend of growth at about two per cent, the economy is unlikely to make much progress in closing the output gap — the measure of when the economy is running on all cylinders.
Canada recorded a modest 1.8 per cent growth rate in both the first and second quarter of this year, and projections are for a similar tepid performance in the second half of the year.
The Bank of Montreal's Doug Porter also gave short shrift to the tightening bias language.
"The bank stuck with its extremely mild tightening bias, but that bias almost seems aspirational rather than any commitment to move," he said.
"We now expect the bank to remain on hold deep into 2013, even as they continue to signal that the next move in rates is still likely to be higher rather than lower."
The loonie closed down 0.52 of a cent at 100.92 cents US as traders took in the news, but also looked toward an announcement from the European Central Bank on Thursday and payroll reports for Canada and the U.S. coming out on Friday.
The good news, the bank said, is that there are signs that the housing market is slowing, although those are "tentative" and the household debt burden continues to rise. That takes some pressure off the bank to raise rates in order to head off a housing bubble.
As well, the bank is not worried about inflation, which it said would return to the two-per-cent target over the next 12 months.
The big drag on the economy, the bank says, is the export sector, which is being restrained by weak foreign demand, ongoing competitive issues and the high Canadian dollar. Exports won't return to their pre-recession peak until early 2014, it added.
The bank's analysis is in line with many private sector economists who believe Carney won't be in position to push the interest rate lever forward until mid-to-late 2013, and only if global conditions improve.
In an unrelated report, the World Economic Forum also cited Canadian competitiveness as a problem.
In its latest annual assessment of leading economies, the forum dropped Canada's competitiveness two notches to 14th place, and part of the blame goes to Ottawa's handling of the innovation file.
The Conference Board of Canada, which assisted the forum in the gathering the information, said the country is not taking full advantage of our strong economic fundamentals.
"Too often, Canada fails to commercialize its good ideas into marketable products and services or capture the value from growth," said board president and CEO Daniel Muzyka.
That has also been the judgment of the federal government, which commissioned a study on the issue and in the March budget introduced new funding approaches it hopes will lead to improvements.
The bank's statement gives no sense of a turnaround in the global economy any time soon.
"The economic expansion in the United States continues at a gradual pace," it said. "Europe is in recession and its crisis, while contained, remains acute."
"In China and other major emerging economies, growth is decelerating somewhat more quickly than expected from previously rapid rates, reflecting past policy tightening, weaker external demand and the challenges of rebalancing towards domestic sources of growth."
Notwithstanding the global problems, it notes that prices for oil and other commodities produced by Canada have, on average, increased since July, which is also helping the Canadian economy cope.
The bank did not issue a new forecast Wednesday, but said conditions remain roughly in line with its July expectations, when it pegged growth in Canada at 2.1 per cent this year and 2.3 per cent in 2013.
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