Toronto mortgage. Bank of Canada leaves rates unchanged at 0.25%

Real Estate Agent with Right at Home Realty Inc., Brokerage

The Bank of Canada kept its overnight rate target at 0.25% and repeated its conditional commitment to keep it there until the end of the second quarter of 2010.

"Global economic and financial developments have been somewhat more favourable than expected at the time of the July Monetary Policy Report (MPR), although significant fragilities remain," the BOC said.

The Canadian dollar fell against its U.S. counterpart after the announcement. One U.S. dollar fetched CAD$1.0368, up 0.8%.

The bank also said 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 its projection period. The Canadian economy is expected to grow by 3% in 2010 and 3.3% in 2011, after contracting by 2.4 per cent this year.

The bank said closing Canada's output gap, and reaching its inflation target of 2%, won't happen until the third quarter of 2011, one quarter later than it projected in July.

Interest rates will likely stay at their current historic lows through June 2010 in an effort to meet the Bank of Canada's inflation target of two per cent, says governor Mark Carney.

Speaking to CTV's Question Period Sunday, Carney confirmed speculation that interest rates would remain at 0.25 per cent, the lowest rate Canada has ever seen, well into next year.

When asked if Canadians should lock in to five-year mortgage terms on the news, Carney demurred.

"It's not my job to give investment advice to Canadians," Carney said. "But on the general point anybody, anytime they borrow for a longer period of time, wants to think about, 'Can I sustain that borrowing over the course of that time? What happens when interest rates ultimately normalize?'"

Carney reiterated earlier Bank predictions that the Canadian economy will continue to grow, by three per cent next year and by 3.3 per cent in 2011.

"That's more modest than usual recovery, so it's not going to feel like a gangbusters recovery," Carney said. "But it is a recovery and that's important."

According to Carney, government stimulus will continue to foster growth in the short-term. But investments from the business community will kick in by 2011 and beyond, when public money dries up.

"True growth comes from the private sector," he said. "And the private sector is starting, even after what has been a very difficult recession -- a short, but very deep recession -- is starting from a position of strength. Corporate balance sheets are in outstanding shape, the best they've been in 25 years in this country."

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