Bank of Canada cuts 2013 growth outlook

The Bank of Canada cut its growth forecast on Wednesday in a signal that interest rates will remain at historically low levels for some time.

Growth in Canada will expand by 1.5 per cent in 2013, down from January's estimate of 2 per cent, the Bank of Canada said as it held its key overnight rate at 1 per cent where it has sat since September 2010. The cut in outlook comes as the International Monetary Fund this week reduced its growth forecast for the Canadian economy.

"With continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target," the central bank said in a statement.

In 2014, the economy is expected to expand by 2.8 per cent, the central bank said.

Recent economic data has fallen short of expectations, weighed down largely by a bumpy period late last year. Jobs data in March disappointed, while economic drivers such as the housing market and consumer spending have cooled.

Given the soft economic performance as of late, some economists had speculated whether the Bank of Canada Governor Mark Carney would tweak the bank's policy bias. Carney is stepping down in June to take the helm at the Bank of England.

"The Bank of Canada stuck to its guns that the next move will be a rate hike after a 'period' at 1 per cent, making no explicit pledge that the period on hold will be longer or extended," said Avery Shenfeld, chief economist at CIBC World Markets.

"However, reading between the lines of its forecast, a longer wait, perhaps until early 2015, might be in the cards."

The bank's expectation is that inflation will largely be kept in check, saying "total and core inflation are expected to remain subdued in coming quarters before gradually rising to 2 per cent by mid-2015 as the economy returns to full capacity..."