From CTV News Staff
The Bank of Canada has opted to leave its trend setting overnight rate unchanged at 2.75 per cent, saying the U.S. economy remains too precarious to warrant toying with Canadian interest rates.
The central bank said it was leaving its key target for the overnight rate unchanged and the Bank Rate remains at three per cent.
Investors sent the Canadian dollar down a quarter of a cent on the news.
Analysts had seesawed between a rate hike of about 25 basis points or throwing another log on the fire in the form of a small drop. But in the end, the central bank said Canada's largest trading partner is still too wobbly and poses a threat here.
"Near-term prospects for growth in the United States and the major overseas economies appear to have weakened somewhat," the bank said in a statement. "There is also increased uncertainty associated with global financial market volatility and the unsettled geopolitical situation."
Bank of Canada governor David Dodge has raised interest rates three times since April to keep a cap on inflation as the Canadian economy soared. The Bank of Canada frequently raises or lowers interest rates when it wants to adjust economic growth and keep inflation in check.
Leaving the rate unchanged may mean that the Bank of Canada is concerned that the Canadian economy is slowing down.
"I think what they're saying is 'Look, Canadian numbers are good . . . but we're worried about the momentum going into the second half,' " said Tim O'Neill, chief economist with the Bank of Montreal.
The Canadian economy has been relatively healthy compared to that of the U.S.
According to Statistics Canada, second-quarter economic growth grew at an annualized rate of 4.3 per cent, continuing the solid expansion that has created more than 330,000 jobs so far this year and kept consumers spending.
By comparison, the U.S. economy grew at an annual rate of only 1.1 per cent in the same quarter.
For retired Canadians and investors banking on interest income, a hike would have been welcome news. Leaving the rate unchanged hands Canadians seeking to buy a house, car or other purchase on credit a reprieve.
However, the bank left the door open to future rate hikes in order to reach its inflation control target of two per cent.
"It remains the Bank's view that, as the Canadian economy continues to expand and to approach its production capacity, further measured reductions in monetary stimulus will be necessary," the bank said.
On Tuesday, the Dow Jones Industrial Average fell 355.45 points to 8,308.05, its worst one-day loss since July 19.
The tech-laden Nasdaq index fell 51.01 points to 1,263.84. In Toronto, weakness in information technology and banking stocks dragged the S&P/TSX index down 158.45 points to 6,453.50. Even before North American markets opened, Tokyo's Nikkei index hit a 19-year low.
At least one analyst believes uncertainty over the upcoming anniversary of the Sept. 11 terror attacks and fears of a possible U.S. attack against Iraq are also prompting investors to leave stocks and head for safer ground.
"Things have gotten so bad, we think that over the next six months we will see not a dramatic but a slow gradual and encouraging improvement," said mutual fund manager Duncan Stewart.
The Bank of Canada has opted to leave its trend setting overnight rate unchanged at 2.75 per cent, saying the U.S. economy remains too precarious to warrant toying with Canadian interest rates.
The central bank said it was leaving its key target for the overnight rate unchanged and the Bank Rate remains at three per cent.
Investors sent the Canadian dollar down a quarter of a cent on the news.
Analysts had seesawed between a rate hike of about 25 basis points or throwing another log on the fire in the form of a small drop. But in the end, the central bank said Canada's largest trading partner is still too wobbly and poses a threat here.
"Near-term prospects for growth in the United States and the major overseas economies appear to have weakened somewhat," the bank said in a statement. "There is also increased uncertainty associated with global financial market volatility and the unsettled geopolitical situation."
Bank of Canada governor David Dodge has raised interest rates three times since April to keep a cap on inflation as the Canadian economy soared. The Bank of Canada frequently raises or lowers interest rates when it wants to adjust economic growth and keep inflation in check.
Leaving the rate unchanged may mean that the Bank of Canada is concerned that the Canadian economy is slowing down.
"I think what they're saying is 'Look, Canadian numbers are good . . . but we're worried about the momentum going into the second half,' " said Tim O'Neill, chief economist with the Bank of Montreal.
The Canadian economy has been relatively healthy compared to that of the U.S.
According to Statistics Canada, second-quarter economic growth grew at an annualized rate of 4.3 per cent, continuing the solid expansion that has created more than 330,000 jobs so far this year and kept consumers spending.
By comparison, the U.S. economy grew at an annual rate of only 1.1 per cent in the same quarter.
For retired Canadians and investors banking on interest income, a hike would have been welcome news. Leaving the rate unchanged hands Canadians seeking to buy a house, car or other purchase on credit a reprieve.
However, the bank left the door open to future rate hikes in order to reach its inflation control target of two per cent.
"It remains the Bank's view that, as the Canadian economy continues to expand and to approach its production capacity, further measured reductions in monetary stimulus will be necessary," the bank said.
On Tuesday, the Dow Jones Industrial Average fell 355.45 points to 8,308.05, its worst one-day loss since July 19.
The tech-laden Nasdaq index fell 51.01 points to 1,263.84. In Toronto, weakness in information technology and banking stocks dragged the S&P/TSX index down 158.45 points to 6,453.50. Even before North American markets opened, Tokyo's Nikkei index hit a 19-year low.
At least one analyst believes uncertainty over the upcoming anniversary of the Sept. 11 terror attacks and fears of a possible U.S. attack against Iraq are also prompting investors to leave stocks and head for safer ground.
"Things have gotten so bad, we think that over the next six months we will see not a dramatic but a slow gradual and encouraging improvement," said mutual fund manager Duncan Stewart.
