Central bank holds key rate steady

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					Central bank holds key rate steady
Bank of Canada shrugs off recent market volatility, says risks balanced
Louise Egan
March 7, 2007 – The Toronto Star

The Bank of Canada held its key overnight          through this year and 2008. It judges the
interest rate unchanged at 4.25 per cent           economy to have operated at, or just above,
yesterday, as expected, and shrugged off           capacity at the end of 2006.
recent market volatility to say its upbeat         “Despite recent volatility in global financial
outlook for 2007 remained unchanged.               markets, the bank continues to judge that the
It made no suggestion of future rate moves in      risks to its inflation projection are roughly
a statement that was devoid of nuance,             balanced,” it said.
suggesting it will keep monetary policy idle       Some market players had expected to see at
for some time to come.                             least an acknowledgment of data hinting that
“The Bank of Canada is very happy where            the risk of a U.S. slowdown remained strong,
things are, given all the uncertainties not only   if not higher, than previously.
on the economic front but also on the              “I believe that since the bank met last January
financial market front as well,” said Michael      there has been a substantial deterioration in
Gregory, senior economist at BMO Capital           risk,” Gregory said.
Markets. “When in doubt, do nothing. That’s
the new mantra of monetary policy around           Slower than expected U.S. economic growth
the world, not only from the Bank of               remains the main downside risk to the
Canada.”                                           Canadian economy. The main upside risk is
                                                   stronger than expected household spending,
The bank has held rates steady six times in a      in Canada, largely because of borrowing
row following seven hikes ending in May            against home equity.
                                                   In its Jan. 16 rate decision, the bank had said
The Canadian dollar moved to $1.1752 to the        both threats had “diminished somewhat” but
U.S. dollar, or 85.07 cents (U.S.), from           left that reference out this time.
around $1.1786 to the U.S. dollar prior to the
bank’s announcement.                               The bank’s inflation outlook was unchanged.
                                                   It sees total inflation averaging just above 1
The institution’s outlook for inflation and        per cent in the first half of this year, returning
growth remained unchanged from its Jan. 18         to the 2 per cent target in 2008. Core
Monetary Policy Report Update and it               inflation, which excludes volatile items and
repeated its projection that the economy           guides monetary policy, should remain near 2
would continue to operate at near capacity         per cent through the end of 2008.