Bank of Canada says growth may be greater than forecast

The Bank of Canada said the country's economy may grow faster in the second half of this year than it forecast earlier this summer.

In July, the central bank had projected the economy would rebound by 1.3 per cent in the third quarter and by three per cent in the final quarter. While the bank offered no new growth estimates, it signalled that the economy is performing better than it was just two months ago.

At that time, the Bank of Canada said the recession in Canada was likely over. 

"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada," the bank said in a statement Thursday.

"Combined with recent information on inventory adjustments and automotive production, this suggests that GDP growth in the second half of 2009 could be stronger than the bank projected in July."

The central bank's comments came as it released its latest interest rate policy announcement. As expected, it left its key overnight interest rate unchanged at 0.25 per cent.

The central bank reiterated its commitment to leave the key rate at that level through the middle of next year as long as inflation remains in check.

The bank also repeated its warning about the high Canadian dollar. "Persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target," it said.

Inflation expected to remain low

Still, the bank predicts that inflation should remain low for the foreseeable future.

"Total CPI inflation is still expected to trough in the current quarter before returning to the two per cent target in the second quarter of 2011 as aggregate supply and demand return to balance."

Economists said the bank's comments suggest it is more optimistic the economy is emerging from recession.

"On balance, the bank seems more confident that the recovery is starting," said Dawn Desjardins, assistant chief economist at RBC.

"Our read is that the bank expects policymakers to keep their feet on the gas pedal to ensure that the nascent recovery does not peter out," she wrote in a morning commentary.

The Canadian dollar was up 0.02 cents to 92.53 cents US at 11:15 a.m. ET.