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Canada leaves key rate unchanged

Canada leaves key rate unchanged

Canada's central bank left its key interest rate unchanged on Wednesday and said the need to boost the rate has diminished.
The Bank of Canada, which held its benchmark rate at 1 percent, previously suggested it would hike rates this year. But the bank said the global economic outlook has deteriorated in recent weeks and suggested its yearlong pause will continue.
It said the European sovereign debt crisis has intensified, while the U.S. recession was deeper and its recovery shallower than previously reported. Canadian exports "are now expected to remain a major source of weakness," the bank said.
As a result, the central bank concluded, "the need to withdraw monetary policy stimulus has diminished" and the rate won't be raised now.
The decision to leave interest rates unchanged was widely expected.
The bank has left the key rate unchanged since September 2010. Last summer, Canada became the first nation in the Group of Seven nation to raise interest rates since the global economic crisis began.
Craig Alexander, Senior Vice President and Chief Economist at TD Bank Group, said if Europe continues to weather the ongoing fiscal crisis and the U.S. economy struggles its way through it's problems, the earliest Canada's central bank would raise the rate would be the second half of 2012. But he said there's a distinct possibility it won't be until 2013.
"The Bank of Canada has definitely moved to the sidelines," Alexander said. "Interest rates in Canada will remain lower for longer. I think that's consistent with the fact that the U.S. Federal Reserve has signaled a conditional commitment to leave rates until the middle of 2013."
He added that "quite frankly the economic conditions don't warrant higher interest rates at this time."
CIBC Chief Economist Avery Shenfeld noted the central bank didn't suggest whether it would raise or cut rates in the future and said that implies a rate cut is a possibility. Shenfeld said he thinks the bank will be on hold for the rest of the year.
Canada's commodity-rich economy has experienced a better market rebound than other nations in the G-7, which groups industrialized nations. There was no mortgage meltdown or subprime lending crisis in Canada, and its banks are rated among the soundest in the world.
The Canadian government also has plans to balance the country's budgets by 2014-15 and has urged other countries to reduce their deficits.