Carney keeps rate at 1%

The Bank of Canada held its benchmark interest rate steady at one per cent on Tuesday, the sixth straight time the bank has opted to stand pat.
Bank of Canada governor Mark Carney opted not to raise the bank's benchmark lending rate on Tuesday. (Sean Kilpatrick/Canadian Press)

The Bank of Canada held its benchmark interest rate steady at one per cent on Tuesday, the sixth straight time the bank has opted to stand pat.

"The global economic recovery is proceeding broadly as expected," the bank said in a statement posted on its website Tuesday morning.

Statistics Canada released data last week that showed the Canadian economy expanded at a 3.9 per cent annual pace in the first quarter. That's slightly slower than what the central bank was expecting.

"While Canada's strong dollar has seen investment increase and manufacturing experience a long overdue rebound, these are still highly uncertain times for the Canadian economy," mortgage broker Marcus Tzaferis said.

'Should the picture evolve as expected in the Bank of Canada's forecasts, expect rate hikes.'—Scotiabank

While Canada's wobbly recovery is proceeding "largely as expected," as the bank put it, it's still a concern for policymakers who have to balance the benefits of keeping rates low to support a still-uncertain economy, with the pain that easy money brings with it — inflation.

Inflation has come in slightly higher than the bank was expecting, and high gas prices and tax changes will make that remain the case for the next little while.

"Reflecting all of these factors, the bank has decided to maintain the target for the overnight rate at one per cent," the bank said.

After keeping its target for the overnight rate at a record low of 0.25 per cent through most of the recession, the bank hiked the rate by a quarter of a percentage point at three straight policy meetings in June, July and September 2010 before holding steady ever since.

The rate has a large impact on the rates banks offer to businesses and consumers for borrowing and saving.

Loonie soars

And while it declined to do so on Tuesday, the bank left the door open to rate hikes in the near future. To the extent that the expansion continues, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, the bank said. 

"In other words, should the picture evolve as expected in the Bank of Canada’s forecasts, expect rate hikes," Scotiabank economists said in a note following the announcement.

The central bank cautioned that any rate hike "would need to be carefully considered," but that was enough to set the Canadian dollar on a tear. The loonie was changing hands at 103.26 cents US on Tuesday, up 0.93 of a cent since the bank's announcement.

The bank's next decision on interest rates is due on July 19.