Bank of Canada sets interest rate

The Bank of Canada is keeping its trend-setting interest rate at 1%, even as the Canadian economy shows signs of a broadening recovery.

The central bank says improvements to Canada’s economic health have been offset by risks such as sliding oil prices and high household debt.

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In its rate announcement, the bank says inflation has climbed faster than expected due to the temporary effects of a lower Canadian dollar and price jumps in certain consumer sectors.

“The statement did sound more sanguine on the US economy as pertains to the lift it will provide to Canadian exports,” writes Nick Exarhos of CIBC WM Economics in a note to analysts.

The bank says Canadian exports have picked up amid disappointing global growth thanks to an improved U.S. economy–a boost that has also led to more business investment and jobs in Canada.

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The document says the output gap appears to be smaller than the bank had predicted in its October monetary policy report due to the recent changes.

The country’s overnight interest rate hasn’t budged since September 2010, keeping borrowing rates at historic lows.

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“Taken as a whole, the statement could be appears somewhat more hawkish than expected, although the fact that the Bank does not mention recent improvements in the labour market implies some doubt regarding the sustainability of recent gains there,” says Exarhos.

Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.