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Interest rate stays frozen

Published by Steve Coleman on April 17, 2012

Canada's interest rate hasn't changed.

The Bank of Canada opted April 17 to leave its pivotal overnight rate at one per cent, despite concerns that private borrowing could be getting into high-risk levels.

The bank projected the Canadian economy will grow 2.4 per cent in both 2012 and 2013 before the pace of growth mellows to 2.2 per cent in 2014. The economy is expected to make a full recovery from the 2008 recession sometime in the first half of 2013.

Partly because of higher gasoline prices, inflation is expected to become more of a problem than economists predicted in January. At two per cent, the rate will still be within the bank's guidelines.

Economists say the bank has taken a tougher tone with its latest announcement.

"The change in language does not come as a shocking surprise," says a TD Economics briefing. "While Canadian economic growth was choppy over 2011, real GDP likely grew at an average close to three per cent over the second half of 2011 and first quarter of 2012 - a pace of economic growth that is well above trend. In addition, keeping rates this low with a well functioning banking system will only help contribute to the household debt problem building in Canada - a risk that the Bank of Canada Governor has warned against in many speeches and one that he has recently communicated a willingness to lean against."

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