Bank of Canada maintains overnight rate target at one per cent

The Bank of Canada announced that it is maintaining its target for the overnight rate at one per cent.

The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economy has slowed markedly as several downside risks to the projection outlined in the Bank’s July Monetary Policy Report (MPR) have been realized.

Financial market volatility has increased and there has been a generalized retrenchment from risk-taking across global markets.

The combination of ongoing de-leveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies.

The Bank now expects that the euro area — where these dynamics are most acute — will experience a brief recession. The Bank’s base-case scenario assumes that the euro-area crisis will be contained, although this assumption is clearly subject to downside risks.

The outlook for the Canadian economy has weakened since July, with the significantly less favourable external environment affecting Canada through financial, confidence and trade channels.

Although Canadian growth rebounded in the third quarter with the unwinding of temporary factors, underlying economic momentum has slowed and is expected to remain modest through the middle of next year.

Domestic demand is expected to remain the principal driver of growth over the projection horizon, though at a more subdued pace than previously anticipated. Household expenditures are now projected to grow relatively modestly as lower commodity prices and heightened volatility in financial markets weigh on the incomes, wealth and confidence of Canadian households.