OTTAWA: The Bank of Canada on Tuesday maintained its key lending rate at 1.0 percent as expected, saying "supply shocks arising from recent geopolitical events" could further boost commodity prices.
The global economic recovery is proceeding largely as expected, but risks "remain elevated," the central bank said in a statement.
US activity supported by government spending and low interest rates is "solidifying," but European debt remains a drag on the recovery and a "significant source of uncertainty to the global outlook," it said.
Commodity prices already bolstered by robust demand from emerging-market economies also "could be further reinforced temporarily by supply shocks arising from recent geopolitical events," notably instability in oil exporting nations such as Libya.
Canada was the first G7 nation last year to hike interest rates from a historic low, raising rates three times since mid-2009, before putting on the brakes as the Canadian economy surged in the last quarter.
In the last three months of 2010, Canada's economy grew 3.3 percent year-over-year, mainly due to higher oil exports.
While global inflationary pressures are rising, inflation in Canada has been mostly subdued, reflecting "considerable slack" in the economy, the central bank said.
The Canadian recovery is proceeding "slightly faster than expected," it said.
Consumption growth remains strong, business investment continues to expand rapidly and there is "early evidence" of a recovery in exports.
But Canada's export sector continues to face challenges due to the persistent strength in the Canadian dollar and Canada's poor relative productivity performance.
Thus Canadians are not likely to face another interest rate hike, the central bank hinted and analysts predicted, until at least the end of May.
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