By Luann Lasalle, The Canadian Press

MONTREAL - Younger Canadians are expected to lead the way with home buying this year as they take advantage of low interest rates, new jobs and what they consider “good prices,” a bank survey says.

The survey for the Royal Bank suggested that 15 per cent of Canadians between the ages of 18 and 24 were very likely to buy, almost double from eight per cent in 2009.

It’s a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and the recession.

“Our poll found that 35 per cent of younger Canadians, between the ages of 18 and 24, are intending to buy a home due to good real estate prices,” Marcia Moffat, RBC’s head of home equity financing in Toronto, said Monday.

The national average price for a home was $328,537 in January, according to the Canadian Real Estate Association.

Thirty-one per cent of 18 to 24-year-olds surveyed in the online poll said they would buy a house because of a new job. The survey also found 22 per cent in that young age group wanted to buy a home because they considered interest rates were good.

CIBC World Markets senior economist Benjamin Tal said more young people are getting into the real estate market, taking advantage of low interest rates, lower down payments and more years to pay off their mortgages.

Tal said he estimates the young people getting into the market as a bit older, between the ages of 22 and 28.

“Basically parents are begging their kids to buy now because they remember when they were paying 12 to 15 per cent mortgage interest,” Tal said.

“So there’s a sense of urgency to get into the market and young people are a part of it.”

Tal described the coming real estate market of the next three or four years as “boring.”

“I think that what we are doing now is that we are basically stealing activity from the future.”

The RBC survey also suggested that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it’s considered a seller’s market.

“Confidence in the housing market is back, essentially,” RBC senior economist Robert Hogue said.

Royal Bank said the study found more Canadians are “very likely” to buy a new home in the next two years.

Ten per cent of the 2,047 people of all ages surveyed for the study said they planned to buy a home within two years - up from seven per cent two years ago.

The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.

“At this stage last year, there was doom and gloom all around and it definitely affected the housing market,” Hogue said.

One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.

However, the surge in optimism doesn’t necessarily mean that Canadians have forgotten about past economic troubles.

The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.

Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.

The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.

Senior CMHC economist Bill Clark said the market is seeing a lot of “catch-up” and consumers in Ontario and B.C. are likely trying to avoid the harmonized sales tax before the summer.

“So if you roll all of that together it’s really sort of one big recipe for housing starts to go up,” Clark said.

The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.

Urban starts increased nine per cent to 179,100 units in February.

Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.

The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.

In Quebec, urban starts fell 14.1 per cent.

Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.

Here is an extract of the Bank of Canada’s announcement of this morning….

‘The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The ongoing global economic recovery is being driven largely by strong domestic demand growth in many emerging-market economies and supported in advanced economies by exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems. The level of economic activity in Canada has been slightly higher than the Bank had projected in its January Monetary Policy Report (MPR). The economy grew at an annual rate of 5 per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports.

The underlying factors supporting Canada’s recovery are largely unchanged - policy stimulus, increased confidence, improved financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada.’
In Benjamin Tal’s (CIBC Senior Economist) Weekly Market Insight, he points out that any move by the Bank of Canada ahead of the Federal Reserve poses significant risks for Canada. Below, is an extract of some of the pertinent points which I thought you would find of interest:

‘This is a risky move given that both in 1992 and 2002 the Bank moved independently of the Fed, only to reverse the decision a few months later. The most likely scenario is that the Bank will move by 50-75 basis points and then will pause until 2011 and continue to hike alongside the Fed. The reason for the limited hike in 2010 is that the ongoing recovery in the Canadian economy will not be linear. The first two quarters of the year will be strong, reflecting fiscal stimulus from both sides of the border, a rebounding inventory cycle and strong credit growth in Canada. These factors, however, will fade in the second half of the year, with overall GDP growth expected to average less than 2% vs. more than 3% in the first half.

As for inflation, the Bank of Canada is projecting core inflation to reach its target rate of 2% by mid-2011. But the core rate has already reached 1.9% last month. Is the Bank of Canada wrong? The short answer is no. The 1.9% advance in the core rate reflects a very soft base period (rates are calculated on a year-over-year basis and January of 2009 saw a notable decline in prices). This means that the coming months will see a much lower inflation rate. The reality is that the underlying inflation rate in Canada is well below 1.5%. So we still have a lot of time until we reach the Bank’s target.’

By Julian Beltrame, The Canadian Press

OTTAWA - The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada’s hot housing market.

Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.

Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.

Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.

But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise, in some cases by more than two percentage points.

Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.

Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.

It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.

Economists have cautioned the minister against putting on the brakes too strongly. They say raising the minimum downpayment requirement to 10 per cent, one of the suggestions given the minister, could cause a crash in a key mainstay of the fragile economic recovery.

The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating rate mortgages once rates start rising, likely as early as this summer.

By the central bank’s own stress test calculation, almost one in 10 households would have a debt-service ratio that makes them vulnerable to economic shocks by the middle of 2012 if current trend continue.

In an address written for deputy governor Timothy Lane last month, the bank suggested the government has all the tools it needs to address the problem.

“An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks,” said notes the address.

“These include capital requirements for institutions, leverage ratios, loan-to-value ratios, terms and conditions for mortgage insurance, and a variety of other measures. These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions.”

There has been much talk of the ‘housing-bubble’ of late and so I thought this article from Sunny Freeman for The Canadian Press would be of great interest to you……
TORONTO — Record home sales last month are based on low supply and high demand and are more likely to drop off this year than inflate a housing bubble that could threaten a fragile recovery, economists say.

A Canadian Real Estate Association report released Friday said December and the 2009 fourth quarter were the best periods on record for home re-sales, while prices also rose sharply from their year-earlier levels.

Meanwhile, strong demand continued to deplete the number of homes for sale and the estimated 5.6 months it would take to sell a house through the Multiple Listing Service in December was less than half the 12.3 months it would have taken a year earlier.

The number of total listings fell 22 per cent in December from the same 2008 period and 12.6 per cent for the year. The imbalance in supply and demand drove the national average price of homes to $337,410 in December, 19 per cent higher than in December 2008, but slightly lower than the 2009 average of $348,840.
Douglas Porter, deputy chief economist at BMO Capital Markets said while high prices caused by strong demand and weak supply could pose a risk to the fragile recovery, he is not willing to jump on the “bubble bandwagon” yet. A bubble occurs when prices increase without any sound underlying fundamentals, he explained, and that’s not the case in Canada’s housing market, which is closely tied to changing interest rates and economic fundamentals.

“We still do have a relatively tight supply situation and exceptionally low interest rates and a mild recovery in the economy, so there are a lot of good reasons why home prices are rising.”

“What we’re seeing is almost textbook recovery,” he said. “The speed of the recovery is mind-boggling, the fact that housing is leading the recovery is really not a surprise… it’s exactly what you’d expect to happen.”
Finance Minister Jim Flaherty said Friday he does not see a housing bubble yet, but he noted the government has many tools at its disposal — from raising down payment requirements on insured mortgages, to lowering amortization periods and urging the banks to be more cautious in their lending — to prevent such a thing from happening. “We don’t want to have a group of house purchasers who purchased houses now at insured mortgages at relatively low rates who would not be able to manage them if rates were to increase later on,” Flaherty said in an interview with Business News Network, a cable TV business channel in Toronto.

“I’ve looked at the numbers with CMHC,” he added. “We’re monitoring it. I do not see evidence of a bubble right now, but we’re going to keep watching it. There are some steps we can take that we will take if it’s necessary.”
The association said 27,744 units were sold across Canada in December, up 72 per cent from the same month in 2008. The year-earlier period saw the lowest sales in a decade in the wake of a global credit crunch and the start of the recession in Canada.

Ottawa — Globe and Mail Update Published on Wednesday, Dec. 16, 2009 12:58PM EST Last updated on Wednesday, Dec. 16, 2009 5:24PM EST

Bank of Canada Governor Mark Carney again warned Canadians Wednesday not to borrow more than they will be able to handle when ultra-low interest rates start to rise, urging households and lenders to act responsibly while debt risks are “still manageable.”

“When risks are still manageable is precisely the best time to act,” Mr. Carney said in the text of a speech he was delivering to a business audience in Toronto. “We must be vigilant, and all parties must fulfill their responsibilities.”

While saying lenders should “actively monitor risk” and not take “false comfort” from mortgage insurance and the past health of household credit, Mr. Carney implored Canadians to “ensure that in the future, when the recovery takes hold and extraordinary measures are unwound, they can still service their debts.”

Mr. Carney’s remarks expand on the central bank’s semi-annual review of the financial system last week, in which he said household debt is now the biggest risk to the country’s financial system, even if it’s still “relatively low” and unlikely to reach levels that could cripple banks’ balance sheets.

That review used a “stress test” to show rising interest rates between mid-2010 and mid-2012 would saddle a growing number of Canadians with debt loads big enough to leave them “financially vulnerable.” At the same time, Mr. Carney said in his remarks that although the Canadian economic outlook has improved, tepid demand in the U.S. for Canadian exports will make the economic recovery not only “more protracted” than usual, but also more dependent on spending at home.

And as the Canadian economy – which resumed growth in the third quarter on the strength of domestic spending – picks up steam, Mr. Carney warned that Canadians may save too little and borrow too much.

Nonetheless, he hinted that he would not seek to rush a return to higher borrowing costs to rein in spending and that monetary tightening won’t come until inflation is closer to the bank’s 2 per cent target.

“Whatever happens, the bank’s monetary policy reaction to consumer behaviour will always be driven by its implications – taken in conjunction with all other relevant factors – for inflation over the medium-term horizon,” he said.

The central bank has made a conditional commitment to keep interest rates on hold until at least the middle of next year.

With the Bank of Canada’s benchmark policy rate at a record low 0.25 per cent since April, cheap mortgage rates, and fiscal incentives such as allowing first-time home buyers to use more of their registered retirement savings as a down payment, have fuelled buying in the housing market and elsewhere in the economy.

In the speech, Mr. Carney pointed to the U.S. subprime mortgage collapse and the subsequent meltdown of that country’s financial system to remind Canadians that growing debt burdens, even if confined to a small slice of the population, can cause problems for the whole economy.

“A shock to economic conditions could be transmitted to the broader financial system through deterioration in the credit quality of loans to households,” Mr. Carney said. “In such an event, increased loan-loss provisions and reduced quality of the remaining loans could lead to tighter credit conditions more broadly.” He also repeated much of the data from his report last Thursday, including the fact that personal bankruptcies in Canada rose this year to the highest level since 1991. In his remarks, he also noted that even as real consumer credit, including home equity lines of credit, declined during the recessions of the early 1980s and 1990s, it’s up 7 per cent in the past year.

In his report last week, Mr. Carney said household debt remains “a key vulnerability over time,” and in the stress test model the central bank assumed that the ratio of debt to income would rise from 1.42, or 1.42 per cent, in the second quarter of this year, to 1.60, or 1.60 per cent, by mid-2012.

To illustrate the point that Canadians’ debt could become a bigger risk once policy makers lift the main interest rate, the bank showed the proportion of households with debt-service ratios higher than 40 per cent of income would rise to 8.5 per cent by the second quarter of 2012, assuming the central bank’s rate is 3.2 per cent. That share would climb to 9.6 per cent assuming the central bank’s rate is 4.5 per cent. The proportion of households with more than 40 per cent debt-service costs was 6.1 per cent over the past decade and peaked at 7.4 per cent in 2000.

The central bank’s report said Canadian banks currently have more than enough capital on hand to absorb potential losses, suggesting that even the worst-case scenario in the stress test would fall short of risking a collapse of the financial system.

Addressing the personal savings rate, Mr. Carney said a savings rate at current levels, or slightly lower, is what the central bank is projecting as part of a consumer-led recovery.

When asked about the potential for a bubble in the housing market he reiterated that the central bank’s core focus remains fixed on inflation. “Monetary policy in Canada doesn’t target specific assets or asset prices,” he said. “It will be set to achieve the 2 per cent [inflation] target.”

Please click on the link, below, in order to access the full report.

CMHC Fall Housing Market Outlook

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank’s projection in its October Monetary Policy Report (MPR).  Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.   The Bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2 per cent target in the second half of 2011.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation.  The Bank’s targeted inflation rate is 2.00%.  The Bank judges the overall risks to its inflation projection are tilted slightly to the downside.  Total CPI is currently at 0.10%.

The next scheduled date for announcing the overnight rate target is 19 January 2010.

Tom Raum, THE ASSOCIATED PRESS
The Canadian Press, 2009

WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.

The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.

How can both be possible?

The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.

But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can’t get loans and the people whose homes are worth less than their mortgages.

Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.

The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.

Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.

A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.

“From a technical perspective, the recession is very likely over,” said Federal Reserve Chairman Ben Bernanke.

“A recession that showed no signs of ending last January appears to be firmly entering the recovery phase,” said Christina Romer, the chair of the White House Council of Economic Advisers.

But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.

“Even when you’ve turned the corner, you have so much work to do,” Romer told Congress’ Joint Economics Committee.

And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said “by mid-2010, fiscal stimulus will be contributing little to further growth.”

Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers’ confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.

That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.

The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.

James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.

“It’s just a word. A recession technically lasts during negative quarters. But that doesn’t mean you’re back to prosperity once you have positive growth. You’re back to prosperity when the unemployment rate is back around 4 per cent,” Galbraith said. And that, he said, could take years.

A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.

But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale and retail sales.

It put the start date at December 2007 and has not yet called an end.

There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.

After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn’t return to under 5 per cent until 2006, when it fell to 4.6 per cent.

While there are clear signs of recovery, it is uneven.

Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.

But smaller banks and other businesses are struggling, and many have failed or are failing.

That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.

“While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need,” Obama said in his weekly radio and Internet address. “These are the very taxpayers who stood by America’s banks in a crisis - and now it’s time for our banks to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs.”

There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.

Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.

Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has made U.S. goods cheaper and more competitive overseas.

But none of this adds up to a sustainable upswing.

“Absent robust job growth, it is not a true economic recovery,” said White House economic adviser Jared Bernstein.

Strong dollar will be a drag on recovery, Carney says.

By JULIAN BELTRAME The Canadian Press

OTTAWA — The stubbornly strong loonie is the major impediment to the Canadian economy rebounding more strongly from the recent deep recession, says Bank of Canada governor Mark Carney.

In a new warning about the currency that is approaching parity with the U.S. greenback, Carney says Canada would experience noticeably stronger recovery next year and in 2011 if the loonie had stayed at the 87-cent level the bank envisaged in the summer.

Carney said Thursday that’s why the bank made it clear this week that barring an unforeseen spike in inflation, it will keep interest rates at the historic low of 0.25 per cent until at least next July.

Carney said the central bank has several tools at its disposal, including intervention in the currency market, but didn’t specify which would be put to use.

“Intervention is always an option,” he said.

“Markets should take seriously our determination to set policy to achieve the inflation target. Markets sometimes lose their focus. We don’t lose our focus.”

The loonie closed 0.16 of a cent lower at 95.44 cents US on Thursday, but many expect it to hit parity in the next few months, mainly because of weakness in the American dollar, which has dropped against most of the world’s major currencies.

A high loonie makes it cheaper to take U.S. vacations and buy imported goods. But it also harms the Canadian manufacturing sector because it makes exports of everything from minerals and metals to newsprint, machinery and lumber more expensive for buyers in the United States, Canada’s main export market.

Carney called the loonie’s persistent rise since July “”the major downside risk” to the economy, noting that although the loonie was higher two years ago, the difference now is that it comes during a period of severe economic weakness.

His comments came after the central bank issued a comprehensive 28-page quarterly review of the global economy, showing a sharp rebound is underway, fuelled by government stimulus and the need to restock depleted inventories.

But in Canada, the strong burst in activity will last at most a few months more before giving way to the slow and difficult climb back from the deep hole that the recession dug over the past year, the review adds.

The bank is more optimistic about the second half of this year than it was three months ago, noting modest employment gains in August and September.

In a supporting report, Statistics Canada announced that retail sales jumped 0.8 per cent in August to $34.5 billion, largely as a result of strong activity at new car dealerships and at gas stations.
“When the labour market fares well, good things tend to happen to the rest of the Canadian economy,” said CIBC economist Krishen Rangasamy.

The domestic economy is now expected to record a two-per-cent gain in the third quarter — the July-September period — and 3.3 per cent during the last three months of this year. The Bank of Canada’s July forecast called for growth of 1.3 per cent and three per cent, in the third and fourth quarters respectively.

A number of things have broken right for Canada to make this happen. Commodity prices, particularly oil, have firmed up, financial markets have stabilized faster than expected, and the global economy, particularly in China, has rebounded quicker and stronger than expected.

And consumers have bounced back strongly, although the manufacturing export sector continues to struggle. There are also concerns about how future government restraint might erode growth as Ontario, Alberta and the federal government warn of spending curbs to cope with large deficits.

That will be more a problem after 2011 when many temporary stimulus measures reach sunset and governments try to work off massive deficits, said TD Bank economist Pascal Gauthier. But he believes governments will play it by ear when they start withdrawing stimulus, or enact deep spending cuts.

“I don’t think the governments themselves could cause a recession because by that time we will have some clarity on whether the private-sector recovery has some legs in it,” he said.

For the next two years, however, it will be the loonie that cuts away at economic growth, the bank’s outlook argues.

Even if the dollar averages 96 cents US, and does not go above parity as some expect, the impact on the export side of the economy will severe enough to restrict growth to 3.0 per cent in 2010 and 3.3 per cent in 2011, a smaller bounce than normally follows deep recessions.

“Over the balance of the projection period, growth is slightly lower, reflecting the effect of the higher value of the Canadian dollar,” the bank said, noting that a high dollar will make life difficult for manufacturers to sell in foreign markets.

On Tuesday, the bank issued a similar warning when it reaffirmed, in strong words, that it intends to keep interest rates at the historic low of 0.25 per cent at least until next summer.

The language had the desired impact of driving the loonie down nearly two cents Tuesday.

Still, no economist believes Carney strong warnings will be sufficient to keep the loonie grounded for long. In the final analysis, the bank believes it has already set back by three months the recovery period.
It won’t be until late 2011 — two full years from now — that Canada’s economy will again be hitting on all cylinders, the bank says.

The Bank of Canada today announced that it is maintaining its target overnight rate at 1/4 per cent.  The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

Recent indicators point to the start of a global recovery and there is evidence of economic recovery in Canada. This growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence.  However, heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.

Growth is expected to be slightly higher in the second half of this year than previously projected but to average slightly lower over the balance of the projection period. The Canadian economy is projected to grow by 3.0 per cent in 2010 and 3.3 per cent in 2011, after contracting by 2.4 per cent this year. This is a somewhat more modest recovery in Canada than the average of previous economic cycles. The Bank of Canada expects inflation to return to the 2 per cent target in the third quarter of 2011, one quarter later than in July’s projection.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

The next scheduled date for announcing the overnight rate target is 8 December 2009.