BoC downgrades economy for next three years, keeps interest rates unchanged

OTTAWA – The Bank of Canada is keeping its trendsetting interest rate at one per cent and signalling it will likely stay low longer than previously anticipated.

The bank says in a new forecast that the Canadian economy will be considerably weaker over the next few years and take longer to return to full capacity.

The interest rate announcement was as expected but, in a surprising move, the central bank also dropped a long-standing caution that its next move will be to raise the cost of borrowing.

Markets are likely to read the jettisoning of a tightening bias that had been in place since April 2012 as an indication the central bank plans stay at one per cent well into 2015, although the actual timing is still open to conjecture.

In a new outlook for Canada and the world, the bank has also completely re-written its playbook for when the economy will return to robust growth.

It has shaved this year’s growth projection by two-tenths of a point to 1.6 per cent, next year’s by four-tenths to 2.3 per cent and 2015 to 2.6 per cent, one tenth lower than it had forecast in July.

By way of explanation, the bank says uncertain global and domestic conditions are delaying the anticipated pick-up in exports and business investment.