The Bank of Canada is hinting it will need to keep interest rates at super-low levels for a while longer, saying stronger economic growth isn't in the cards for the country until next year.
As expected, the bank's policy-setting panel headed by governor Mark Carney kept the trendsetting interest rate at one per cent on Wednesday, the same level it has held for the past two years.
And while Carney left his tightening bias unchanged - meaning the next move will likely be to raise rates - his suggestion that low interest rates are at least partly responsible for keeping Canada's economic head above water in the face of global turbulence hinted at continuing that policy.
"In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy's production potential," the bank said in an accompanying statement.
"Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions."
The bank kept the tightening bias language unchanged.
"To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the two per cent inflation target over the medium term."
CIBC chief economist Avery Shenfeld said with the trend of growth at about two per cent, the economy is unlikely to make much progress in closing the output gap - the measure of when the economy is running on all cylinders.
Canada recorded a modest 1.8 per cent growth rate in both the first and second quarters of this year, and projections are for a similar tepid performance in the second half of the year.
The Bank of Montreal's Doug Porter also gave short shrift to the tightening bias language.
"The bank stuck with its extremely mild tightening bias, but that bias almost seems aspirational rather than any commitment to move," he said.
"We now expect the bank to remain on hold deep into 2013, even as they continue to signal that the next move in rates is still likely to be higher rather than lower."
The loonie closed down 0.52 of a cent at 100.92 cents US as traders took in the news, but also looked toward an announcement from the European Central Bank today and payroll reports for Canada and the U.S. coming out on Friday.
The good news, the bank said, is there are signs the housing market is slowing, although those are "tentative" and the household debt burden continues to rise. That takes some pressure off the bank to raise rates in order to head off a housing bubble.
