OTTAWA :The Bank of Canada says the economy is not doing as well as expected and will likely need stimulative monetary policy to stay in place for longer than previously thought to create the conditions for a sustainable recovery.
In a report yesterday, the bank’s governing council kept in place the one per cent trend-setting interest rate that is responsible for some of the lowest borrowing costs in memory. The rate has remained unchanged for almost four years.
The bank cut its April projections for global growth this year by four-tenths of a point to 2.9 per cent and for the U.S. — Canada’s most important foreign market — by more than a full point to 1.6 per cent.
The bank says the effect on Canada was less dramatic, but still significant. Economic growth projections for 2014 and 2015 were trimmed by one-tenth of a point — to 2.2 and 2.4 per cent respectively.
As well, the bank set further back to mid-2016 the target date for the economy to return to full capacity, suggesting that whatever timeframe markets had for the next interest rate hike, it is likely now to occur three months later.
The key reasons for the downgrade, said the bank, is that the world and particularly U.S. had an “abrupt slowing” at the start of this year — the American economy actually shrank by an eye-popping 2.9 per cent — and while growth has resumed, the bounce-back is not sufficient to make up for what has been lost.
For Canada, the bank says that will further delay the expected pickup in exports and business investment that were being counted on to put economy on a sustainable growth path
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