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Interest rate stays frozen at one per cent

Published by Steve Coleman on March 08, 2012

With the global recovery happening slower than expected in developed countries, the Bank of Canada has opted to keep interest rates frozen - at least until the next update in April.

The bank announced March 8 that the overnight rate will stay frozen at one per cent with signs Europe is starting to figure out how to solve its financial problems.

While world economies are slowly picking up, the one thing that could pull the big picture out of focus is higher-than-expected commodity prices. A sudden jump in world oil prices could hamstring the world's financial situation, again, the bank said.

"Commodity prices are higher than anticipated, supported by improved global economic conditions and a geopolitical risk premium on oil," the Bank of Canada said in a news release. "If sustained, the latter could ultimately dampen the improvement in global economic momentum."

As for the Canadian economy, things are looking better now than they did in January, the bank says. A large part of the improvement, however, could be because of a stronger-than-expected recovery in the United States.

It's also expected that Canadians will continue spending and putting themselves deeper into debt this year.

Partially because of higher oil prices, the Bank of Canada predicts the inflation rate will hover somewhere around the two per cent mark by the end of the first quarter.

"With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada," The BoC said in its news release. "The bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the two per cent inflation target over the medium term."

The next official announcement over the overnight bank rate is scheduled for April 17.

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