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Canada's central bank keeps interest rate unchanged at 1 percent

06-01-2011 08:13 BJT

OTTAWA, May 31 (Xinhua) -- The Bank of Canada, the central bank of the country, kept its benchmark interest rate unchanged at 1 percent on Tuesday, the sixth straight time the bank has stood pat since it raised the rate three consecutive times in last June, July and September.

The global economic recovery is proceeding broadly as expected, the bank said in a statement.

Commodity prices have declined recently but are expected to remain at elevated levels, which are contributing to broader global inflationary pressures, said the bank.

While underlying inflation is relatively subdued, the Bank expects that high energy prices and changes in provincial indirect taxes will keep Canada's total CPI inflation above 3 percent in the short term.

However, the bank believed that the inflation expectations remain well-anchored and the total CPI inflation is expected to converge with core inflation at 2 percent by the middle of 2012.

The bank also cited increased household borrowing and spending as potential contributors to inflation, but the persistently high Canadian dollar could mitigate that, and put downward pressure on inflation and the economic recovery.

"Reflecting all of these factors, the bank has decided to maintain the target for the overnight rate at 1 percent," the bank said.

The bank's next decision on interest rates is due on July 20.

"To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn," said the bank.

"Such reduction would need to be carefully considered," it added.

Editor:Yang Jie |Source: Xinhua

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