Bank of Canada keeps benchmark interest rate unchanged

Bank of Canada, the Canadian central bank, on Tuesday announced that it would keep its trendsetting interest rate locked at 1 percent, which turns out to be the 18th consecutive time for the benchmark rate to remain unchanged over two years. It is also the longest period of no changes for the benchmark interest rate of the Canadian central bank since the early 1950s. The Bank of Canada said in a statement Tuesday that country's economic activity in the third quarter was weak partly due to transitory disruptions in the energy sector, but insisted that the pace of economic growth is expected to pick up next year and be driven mainly by growth in consumption and business investments. According to the statement, the housing activity of Canada is starting to decline from historically high levels, while the household debt burden continues to rise. Though Canadian exports are expected to gradually increase, they will continue to be restrained by "weak foreign demand and ongoing competitiveness challenges," said the Canadian central bank."These challenges include the persistent strength of the Canadian dollar, which is being influenced by safe-haven flows and spillovers from global monetary policy." Following the central bank's announcement, the Canadian dollar rallied to a session high of 1.0081 U.S. dollars in trading Tuesday from 1.0051 U.S. dollars at the close of Monday's North American session. In terms of the global economy, the Canadian central bank also observed that economic expansion in the United States is progressing at a "gradual pace" and is being restrained by uncertainty related to the so-called fiscal cliff, which has created a standoff between Democratic President Barack Obama and the Republican-controlled House of Representatives over tackling the ballooning American deficit, which, for fiscal year 2012 that ended Sept. 30, was estimated to be about 1.2 trillion U.S. dollars. Meanwhile, Europe remains in recession and Chinese growth appears to be stabilizing, said the Bank of Canada. Given its long period of no changes in the benchmark interest rate, the Bank of Canada cautioned that "over time, some modest withdrawal of monetary policy stimulus will likely be required"to achieve a 2-percent inflation target. "The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector." A full update of the bank's economic and inflationary outlook, along with the next overnight interest-rate target, is scheduled for Jan. 23, 2013.