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Bank of Canada maintains overnight rate target at 1 per cent

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.
Uncertainty around the global
economic outlook has increased in the weeks since the Bank released its
October Monetary Policy Report (MPR). Conditions in global financial
markets have deteriorated as the sovereign debt crisis in Europe has deepened.
Additional measures will be required to contain the European crisis. The
recession in Europe is now expected to be more pronounced than the Bank had
anticipated in October, as a result of increased deleveraging and tighter
financial conditions, as well as necessary fiscal austerity and structural
reforms.

Recent economic data suggest that growth in the United States
has been slightly more robust than anticipated, largely as a result of continued
vigour in consumer spending and business investment. Nonetheless, household
deleveraging, fiscal consolidation and negative spillover effects from the
European crisis are all expected to weigh on U.S. growth. Growth in China and
other emerging-market economies continues to be strong, although there are signs
that it is moderating to a more sustainable pace in response to weaker external
demand and the lagged effects of past policy tightening.

On balance,
recent economic indicators in Canada suggest that growth in the second half of
this year is slightly stronger than the Bank projected in October. Household
expenditures have more momentum than had been expected and business investment
remains solid. Going forward, the weaker external outlook is expected to dampen
GDP growth in Canada through financial, confidence and trade channels. The
economy also continues to face competitiveness challenges, including the
persistent strength of the Canadian dollar.

Although total CPI inflation
has been slightly higher than projected, the Bank continues to expect the
inflation rate to decline as a result of reduced pressures from food and energy
prices and ongoing excess supply in the economy. Core inflation has also been
slightly firmer than projected and is expected to ease as the output gap
persists well into 2013.

Reflecting all of these factors, the Bank has
decided to maintain the target for the overnight rate at 1 per cent. With the
target interest rate near historic lows and the financial system functioning
well, there is considerable monetary policy stimulus in Canada. The Bank will
continue to monitor carefully economic and financial developments in the
Canadian and global economies, together with the evolution of risks, and set
monetary policy consistent with achieving the 2 per cent inflation target over
the medium term.

Information
note:

The next scheduled date for announcing the
overnight rate target is 17 January 2012. A full update of the Bank’s outlook
for the economy and inflation, including risks to the projection, will be
published in the MPR on 18 January 2012.