Tailor Made Mortgages

OTTAWA
– The Bank of Canada today announced that it is maintaining its target for
the overnight rate at 1 per cent. The Bank Rate is correspondingly 1
1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding largely as expected, although
risks have increased.  As anticipated, private domestic demand in the
United States is picking up slowly, while growth in emerging-market
economies has begun to ease to a more sustainable, but still robust, pace.
In Europe, recent data have been consistent with a modest recovery. At
the same time, there is an increased risk that sovereign debt concerns
in several countries could trigger renewed strains in global financial
markets.

The recovery in Canada is proceeding at a moderate pace, although
economic activity in the second half of 2010 appears slightly weaker
than the Bank projected in its October Monetary Policy Report. In the
third quarter, household spending was stronger than the Bank had anticipated
and growth in business investment was robust. However, net exports were
weaker than projected and continued to exert a significant drag on
growth. This underlines a previously identified risk that a combination
of disappointing productivity performance and persistent strength in
the Canadian dollar could dampen the expected recovery of net exports.

Inflation dynamics in Canada have been broadly in line with the Bank’s
expectations and the underlying pressures affecting prices remain
largely unchanged.

Reflecting all of these factors, the Bank has decided to maintain the
target for the overnight rate at 1 per cent. This leaves considerable
monetary stimulus in place, consistent with achieving the 2 per cent
inflation target in an environment of significant excess supply in Canada.
Any further reduction in monetary policy stimulus would need to be
carefully considered.

Information note: The next scheduled date for announcing the
overnight rate target is 18 January 2011. A full update of the Bank’s
outlook for the economy and inflation, including risks to the projection, will
be published in the Monetary Policy Report on 19 January 2011.

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