For the second time in two months, The Bank of Canada has raised its benchmark overnight rate by one-quarter of a percentage point to 0.75% today and has revised their economic prediction that the economy is unlikely to return to full capacity until the end of next year.

“The global economic recovery is proceeding but is not yet self-sustaining. Greater emphasis on balance sheet repair by households, banks, and governments in a number of advanced economies is expected to temper the pace of global growth relative to the bank’s outlook in its April Monetary Policy Report (MPR). While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery over the projection horizon. In the United States private demand is picking up but remains uneven.”

Global cost-cutting measures are currently being attributed for slowing the economic recovery, as governments and consumers alike are monitoring spending more than ever. The central bank said that Canada’s employment rate is slowly growing, but business investment is being held back and the housing sector is “declining markedly from high levels.”

“The bank has taken a step closer towards our world view, but they’re not there yet,” CIBC World Markets chief economist Avery Shenfeld said. “We believe there will still be rate rises in September and October before maybe a pause of six months as weaker figures start coming through.”
CIBC expects growth of 3.3% this year, dropping to 2.5% next.