Bank of Canada holds interest rate at 0.5% as oil shock lingers
OTTAWA — Weak projections for economic growth this year — both in this country and globally — and a new federal government set on a string of budget deficits expected to begin next year could present the Bank of Canada with some major forecasting challenges.
But for now, the central bank is maintaining Canada is on a recovery path after pulling out of an oilcollapse-fuelled recession in the first half of 2015, with that initial rebound driven mainly by improving exports to a strengthening U.S. economy.
Governor Stephen Poloz on Wednesday kept the trendsetting interest rate unchanged at 0.5 per cent, as widely anticipated, and growth in the third quarter of this year will be stronger than forecast a few months ago.
“Canada’s growth has rebounded, as projected in July,” the central bank said in its quarterly Monetary Policy Report, even as energy prices continued to pull down revenues in oilproducing regions of the country.
“In non-resource sectors, the looked-for signs of strength are more evident, supported by the stimulative effects of previous monetary actions and past depreciation of the Canadian dollar,” the bank said.
Wednesday’s MPR estimates the third-quarter at 2.5 per cent, up from 1.5 per cent in the July forecast, and coming after contractions of 0.8 per cent and 0.5 per cent in the previous quarters. For the fourth quarter, the bank expects growth of 1.5 per cent. As for all of 2015, policymakers are predicting an increase of 1.1 per cent, unchanged from the previous MPR.
“Global economic growth has been a little weaker than expected this year, but the dynamics pointing to a pickup in 2016 and 2017 remain largely intact,” the bank said.
“Uncertainty about China’s transition to a slower growth path has contributed to further downward pressure on prices for oil and other commodities. These factors are weighing on growth in many emerging markets and some other economies.”
Policy-makers, however, expect the impact of weak energy prices and lower borrowing costs will help to underpin global growth over the next two years.