OTTAWA (AFP) — The Bank of Canada will likely keep its key interest rate at 4.50 percent to the end of 2009, it said Thursday, fearing a "more pronounced and protracted slowdown" in US domestic demand, and a slowing of the global economy.
In its Monetary Policy Report, the central bank projected 1.9 percent growth in US gross domestic product (GDP) in 2007, and 2.1 percent in 2008, before "rebounding" in 2009, and said economic growth worldwide would "ease modestly" in 2008 and 2009.
Growth in the Canadian economy, meanwhile, has been stronger than projected in July with considerable momentum in domestic demand, peak commodity prices and brisk exports, the bank said.
As well, inflation has been above the central bank's 2.0 percent target for most of the past year, and the Canadian dollar has appreciated "sharply."
"Against this backdrop, the bank left its key policy rate unchanged on September 5th and October 16th at 4.50 percent," the bank said in its report.
"The bank judges, at this time, that the current level of the target for the overnight rate is consistent with achieving the inflation target over the medium term."
"In this base-case projection, there is no change in the policy interest rate."
The Bank of Canada also predicted the Canadian dollar would average 98 cents US over the next two years; global credit conditions would remain tight; metals prices would ease; lumber prices would remain low; and prices for grains and oilseeds would be higher than previously envisaged.
Crude oil prices are expected to near 80 US dollars per barrel through early 2008, before easing to 74 US dollars in 2009, the bank said.
Canadian housing investment would increase slightly "to a very high level" this year, before declining slightly in 2008, it said.
And inflation would likely rise sharply over the remainder of this year to about three percent in the fourth quarter, before it falls to close to two percent in the second half of 2008, and stays there.
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