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December 2011...International issues weigh on performance

Bank of Canada holds its overnight rate at 1% today,


The European sovereign debt crisis and fiscal uncertainty in the U.S. continue to dominate recent headlines and are the most important factors when it comes to the health of the global economy. As conditions in global financial markets have deteriorated and core inflation in check, the Bank of Canada has decided today to keep its overnight rate at 1%.  Some analysts expect the Bank will maintain this target rate at 1% out to the fourth quarter of 2012 and that the 5-year Government of Canada Bond yield is expected to rise to 2.40% by the fourth quarter of 2012.


Economic uncertainty remains high


The Canadian economy is expected to grow slightly stronger than the Bank of Canada projected in October as a result of increased household expenditures and solid business investments. Going forward, Canada is expected to remain on a relatively slow growth path as the recession in Europe and fiscal consolidation in the US dampen international trade prospects and consumer confidence. The Canadian economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar.


Housing market remains healthy


Sales of existing homes in Canada rose in October to the highest level since January confirming Canada’s housing market remains robust despite global market volatility and economic uncertainty. According to statistics released by the Canadian Real Estate Association, national sales of existing homes rose 1.2% in October from the previous month, building on September’s 2.5% gain.


Low interest rates continue to entice homebuyers and some analysts believe that these rates could open the door for increased activity relative to current levels. However, the subdued economic growth environment and questionable consumer confidence could keep some potential buyers from entering the housing market, despite the attractive rates. Experts anticipate that these forces will effectively cancel each other out, leading to relatively flat sales and price levels for the year ahead.

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