RTTNews - The Bank of Canada on Tuesday announced that it is maintaining its target for the overnight rate at 1/4 percent, as expected.

The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The global economy has suffered an intense, synchronous recession and considerable excess supply has opened up, noted the Bank in its accompanying statement. There are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial system.

Still, the Bank warned that recovery is nascent, saying that effective and resolute policy implementation remain critical to sustained global growth.

The Bank also noted the dynamics of the recovery in Canada remain broadly consistent with its medium-term outlook in its April Monetary Policy Report (MPR).

Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth, added the BoC. However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.

The Bank projects that the economy will contract by 2.3 per cent in 2009 and then grow by 3.0 per cent in 2010 and 3.5 per cent in 2011, reaching production capacity in the middle of 2011.

Predicting that total CPI inflation should trough in the third quarter of this year before returning to the 2 percent target in the second quarter of 2011, the Bank said it also expects core inflation to diminish in the second half of this year before gradually returning to 2 percent in the second quarter of 2011.

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