The Bank of Canada kept its key overnight interest rate unchanged at 4.5 per cent Wednesday, September 5. The cautious move was the result of uncertainty over where the economy and inflation are heading.
Bank of Canada governor David Dodge increased the key interest rate to 4.5 per cent in July -- from 4.25 per cent -- in a bid to keep inflation under control and to cool a hot economy.
At the time, most analysts were predicting that another rate hike was likely in September.
However, after a month of turmoil in financial markets -- fuelled by a credit crunch in the U.S. subprime mortgage market -- the Bank of Canada decided to stand on the sidelines Wednesday.
"Near-term prospects for economic growth outside North America appear to be slightly stronger than anticipated... while near-term economic prospects for the United States are weaker than expected," the central bank said Wednesday in a press release.
"It now seems likely that the adjustment in the U.S. residential housing sector will be more pronounced and protracted, exacerbated by recent developments in financial markets."
"There is a possibility that household demand in Canada could be stronger than anticipated, while on the downside the ongoing adjustment in the U.S. housing sector could be more severe and spill over to the U.S. economy more broadly," said the bank.
The Bank of Canada's next scheduled date to announce the overnight rate target is October 16.
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