The Bank of Canada will not adjust its key interest rate during the election campaign, despite strong indications that the economy is well on its way to being fully recovered by the middle of next year.
On Tuesday, the bank announced the key rate will continue to stand at one per cent, the rate at which it has rested since last September.
The move to keep the status quo "leaves considerable monetary stimulus in place," while keeping inflation within its target range, the bank said.
The bank hinted that a rate hike is unlikely in the near future, as "any further reduction in monetary policy stimulus would need to be carefully considered."
Economist David Madani of Capital Economics said it is possible the central bank could keep its interest rates at historically low levels for an extended period, especially if there is a downturn in Canada's housing market later this year.
On the prospects for the Canadian economy, the bank predicts it will "return to capacity in the middle of 2012," after posting better than expected growth this year and next.
It expects the economy to grow by 2.9 per cent in 2011 and 2.6 per cent in 2012, a forecast Madani said is "a little over-optimistic" given the dangers of a downturn in the domestic housing market.
The bank said the wider global economy is showing improved growth as well, though there have been recent disruptions that have resulted from the deadly disasters that struck Japan last month.
"Despite the significant challenges that weigh on the global outlook, global financial conditions remain very stimulative and investors have become noticeably less risk averse," the bank said.
Canadians will see temporary inflation in the Consumer Price Index in mid-2011, due partly to increases in food and energy costs, but the central bank says core inflation remains under control. The CPI inflation will hit 3 per cent this summer, dropping to 2 per cent over the next year.
With files from The Canadian Press
