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The Bank of Canada maintained its key interest rate at at .25 percent and boosted its economic outlook Thursday morning, but signaled that persistent strength in the Canadian dollar remains a risk to growth.
The loonie reached its highest level in a year versus its US counterpart in August, and remains within six Canadian cents of parity against the greenback.
The central bank also reiterated its conditional commitment to hold the current policy rate steady until the end of the second quarter of 2010. Additionally, the bank said it retains "considerable flexibility" in its conduct of monetary policy, suggesting that further stimulus is not out of the question. "Following a deep, synchronous recession, recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets," said the BoC in its statement accompanying the rate call.
"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada....this suggests that GDP growth in the second half of 2009 could be stronger than the Bank projected in July."
Regarding price stability, the BoC judged that the overall risks to its inflation projection are tilted slightly to the downside.
Total CPI inflation is still expected by the bank to trough in the current quarter before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance.
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