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. 2006. 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.