Bank of Canada keeps rate steady at 1%

The Bank of Canada opted to keep its benchmark interest rate steady atone per cent on Wednesday, the same level it's been at for almost three years.

"Growth is expected to be choppy in the near term, owing to unusual temporary factors," the bank said in a statement,"although the overall outlook is little changed from the bank's projection in April."

Wednesday's rate announcement was the first policy decision announced since Stephen Polozreplaced Mark Carney as bank governor at the start of June.

Canada's central bank hasn't moved its benchmark lending rate since September 2010. Its next policy decision is scheduled for six weeks from now, at the start of September.

Similar message

The phrasing of the announcement was slightly different, but the ultimate impact of the Poloz era thusfar looks a lot like the tail end of Carney's time namely, that Canadians shouldn't expect interest rates to move significantly any time soon.

"As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate," the bank said.

"Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target."

That's the bank's way of suggesting it's in no hurry to raise rates until it sees signs the economy is getting significantly stronger.

Loonie down on news

The loonie reacted negatively to the news, losing about half a cent in the minutes following the statement's release at 10 a.m. ET. The dollar closeddown 0.45 of a centat 96.02 cents US.

Rising interest rates would push the loonie's value higher, so the currency sold off once the central bank once again pushed back the time that might happen. "Perhaps the market seeing the clarification of the wording of when rates would rise did a bit of rethinking," CIBC chief economist Avery Shenfeld said.

Although the outlook for rates remain the same, the bank did inch upits forecast for growth in the economy slightly. The bank now expects Canada's GDP to expand by 1.8 per cent this year, up from 1.5 per cent the last time it gave a forecast.

The bank estimated the floods in Alberta and the construction strike inQuebec drained about 1.3 percentage points off Canada's GDPin the April-June period, taking the growth rate to 1.0 per cent. The shocks to the economy merely delayed activity, not suspended it, however, and the bank expects the third quarter will make up for lost time with a boost of 1.8 percentage points to 3.8 growth.

The bank is expecting a much stronger growth rate of 2.7 per cent per year in 2014 and 2015, a figure that's slightly lower than it was saying in April.

Economists got pretty much what they were expecting from the announcement a central bank that's in a cautiously optimistic mood, but in no particular hurry to raise rates.

"Overall, the communiqu shows that the [bank's] view of the economy has little changed since the May meeting, as expected since we believe that the arrival of Mr. Poloz as governor is unlikely to materially change the economic thinking within the Bank of Canada," Charles St-Arnaud of Nomura Securities said in a note to clients.

St-Arnaud expects the central bank to remain on the sidelines for another year, and then begin hiking in the latter part of 2014.