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Bank of Canada maintains rate targets, revises growth outlook

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Bank of Canada maintains rate targets, revises growth outlook

The Bank of Canada opted to maintain its target for the lending rate at 1 percent, while cutting its outlook on economic growth through 2015. The central bank downgraded its growth outlook to 1.6 percent this year, 2.3 percent in 2014 and 2.6 percent in 2015. In July the BoC projected the Canadian economy to grow 1.8 percent this year and 2.7 percent next year before returning to full capacity in mid-2015.

Overall, the global economy is expected to grow 2.8 percent this year, 3.4 percent next year, and at a rate of 3.6 percent in 2015.

Bank of Canada Governor Stephen Poloz now believes the economy will return to full capacity by the end of 2015, as Canada grapples with strong headwinds emanating from a rocky global climate. Sluggish growth south of the border has pushed back the True North’s growth outlook, although the central bank says this will be more conducive to self-sustaining growth over the long-term.

“There is clearly not enough confidence in the U.S. or global economy to push export growth,” said Scotia McLeod wealth advisor Andrew Pyle. The Bank of Canada is “more concerned about a potential correction in the housing sector because of the continued ramp-up in prices,” Pyle also noted.

The Canadian dollar plummeted around 1 percent against its US counterpart after the news, sending the USDCAD to 1.0385. The loonie has enjoyed stronger support over the past week as market participants gradually lose interest in the greenback. The likelihood of a Federal Reserve bond taper in 2013 has dimmed, as more market participants expect record stimulus to continue indefinitely.

In addition to the lower growth outlook, Canada’s sluggish inflation growth means the central bank is likely to keep interest rates low until 2015. The benchmark lending rate has remained at 1 percent since September 2010 when Mark Carney was at the helm.

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