The Bank of Canada left its overnight rate unchanged at 1 per cent for the twelfth consecutive meeting. In the statement accompanying the decision the Bank noted that while heightened uncertainty in the global economy has decreased in recent weeks, global economic growth is likely to remain below trend. The Bank also noted that it expects Canadian households to add to their debt burden in 2012, which in the Bank's judgement is the biggest domestic risk to the Canadian economy. Finally, the Bank is forecasting slightly firmer inflation than previously anticipated as a result of reduced economic slack and higher oiler prices.
The Bank of Canada has lately been stressing the word “flexibility” in reference to its inflation target which can be read to mean that it will tolerate inflation above 2 per cent, at least in the short-run. The situation in Europe along with concerns over rising Canadian household debt is obviously taking precedence over mild inflationary pressures in the minds of monetary policymakers. Given recent weakness in Canadian labour markets and the extent of downside risks to the Canadian economy, it is unlikely that the Bank of Canada will move on interest rates in 2012.
Copyright British Columbia Real Estate Association. Reprinted with permission.