OTTAWA – The Bank of Canada is keeping its trend-setting policy rate at one per cent and radically reducing its expectations for the economic recovery.
The central bank had raised rates three consecutive times since June, but now said the economy is too feeble for more tightening.
It said the recovery is much weaker than it had thought last July, both domestically and around the world.
Canada’s economy will likely grow by only three per cent this year, it said, mostly due to the fast start.
And instead of a solid 2.9 per cent advance next year, growth will average only 2.3 per cent.
Even more surprising, the bank said the economy will take a full year longer than it had previously projected to return to full capacity. The so-called output gap won’t be closed until the end of 2012, it now said.
The bank also revised its language about when to expect future rate hikes, a signal it may stay put for some time.