Reuters: US Dollar Report: UPDATE 1-Bank of Canada keeps rate-hike stance despite softening economy

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UPDATE 1-Bank of Canada keeps rate-hike stance despite softening economy Dec 4th 2012, 14:16 Tue Dec 4, 2012 9:16am EST * Rates on hold; BoC repeats likely need to hike rates over time * Underlying economic momentum softer than expected * Total, core inflation to hit 2 pct target over next 12 months * Fiscal cliff holding back U.S. expansion By Louise Egan and Randall Palmer OTTAWA, Dec 4 (Reuters) - The Bank of Canada held interest rates steady on Tuesday and said it would likely need to hike rates "over time", repeating the formula it used in October despite weaker-than-expected growth, soft inflation and worries about the U.S. fiscal cliff. "Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 percent inflation target," the bank said in a statement, using language identical to its Oct. 23 rate announcement. The central bank has held its overnight lending rate untouched at 1 percent for over two years, the longest period of inactivity since the early 1950s. But starting in April of this year it has telegraphed intentions to tighten monetary policy, making it the only one in the G7 wealthy nations to do so. Governor Mark Carney tweaked that message slightly in October to say a rate hike was "less imminent" but that he was still leaning toward an increase, not a cut. Market players don't expect a move until the fourth quarter of 2013. The bank acknowledged on Tuesday Canada's disappointing third-quarter economic growth of 0.6 percent, annualized, although it said the slowdown was partly due to temporary disruptions in the energy sector. "Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013," it said. It was cautiously upbeat on developments in the overheated housing market, saying housing activity is beginning to cool from record high levels and growth in household credit has slowed. However, it is too early to say whether the trend will be sustained, it warned, noting that personal debt continues to rise. Inflation, which analysts expect to be below the bank's forecasts in the fourth quarter, is "broadly in line" with the bank's October projections, it said. It sees both total and core inflation returning to the bank's 2 percent target "over the course of the next 12 months". In October, it said core inflation would reach the target in mid-2013 and total inflation would reach it at the end of next year. October inflation was 1.3 percent, well below the bank's projection for average inflation of 1.6 percent in the fourth quarter. The bank also noted that the gradual growth in the United States, Canada's top trade partner, was being held back by uncertainty over the so-called fiscal cliff -- a set of tax hikes and spending cuts that will automatically kick in next year and set the economy back unless a gridlocked Congress negotiates an alternative deal with the White House. Link this Share this Digg this Email Reprints

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