Bank of Canada lowers 2013 growth forecast, keeps key rate unchange

OTTAWA – The Bank of Canada says it is holding firm on interest rates even though the economy is considerably weaker than it has anticipated.

Canada’s central bank has lowered its 2013 economic growth forecast to 1.5 per cent from the previous estimate of two per cent.

As well the bank says Canada’s economy is performing well below capacity and it will not return to full capacity until sometime in mid-2015, about six months later than it had thought in January.

The central bank says it will keep the trendsetting overnight interest rate at one per cent for likely some time.

That was widely expected by economists and markets. Also expected was that Bank of Canada governor Mark Carney and his policy-setting council would concede they had been overly optimistic about the Canadian economy.

Despite the weaker growth profile, the bank says Canadians will start to see conditions pick up in the second half of this year and did not alter its so-called tightening bias, which advises markets that it still expects the next move on interest rates will be a hike rather than a cut.

Still, markets will likely read the statement as more dovish the previous ones, and calculate that they can bank on interest rates remaining at current levels for at least the next year and likely longer