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Bank of Canada Holds Key Interest Rate at 1.00 Percent

Bank of Canada Holds Key Interest Rate at 1.00 Percent

2011-05-31 13:23:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The Bank of Canada held its key benchmark interest rate at 1.00 percent, though noted that some stimulus could be “eventually withdrawn.” The target rate has been at 100 basis points since September, and such an announcement falls in line with economists’ expectations, according to a Bloomberg News survey.

Governor Mark Carney noted there is still “material excess supply in the economy,” which could be “withdrawn,” but “such [a] reduction would need to be carefully considered.” The rhetoric falls in line with statements made in prior decisions, as the recovery has proceeded “largely as expected.”

Canada’s economy has been particularly resilient since the recession, being the only advanced economy to recover all of its lost jobs and create new employment opportunities since the crisis. Nonetheless, the central bank is predicting slower growth in the coming months, having stated last month that growth is expected to slow in the second quarter of 2011, to about a 2.0 percent annualized rate, after having grown at a 3.9 percent annualized rate in the first quarter of 2011, as a release showed yesterday. The Bank of Canada also noted that any rate increases would be predicated on keeping price pressures “consistent with achieving the 2 percent inflation target.”

In the minutes following the decision, the USD/CAD pair fell from as high as 0.9723 to as low as 0.9668. Overall, the Loonie gained across the board, picking up ground against the major currencies, and now has appreciated against all the major currencies on an intraday basis. Similarly, the Dollar Index fell from 9578.54 to as low as 9563.69.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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