Bank sticks with key rate
Central bank hands off stimulus to Trudeau
The Bank of Canada stuck with its key lending rate Wednesday, a move that essentially hands over the economy-boosting controls to the federal government.
Governor Stephen Poloz offered a peek behind the scenes, saying senior bank officials entered pre-announcement deliberations with a bias toward making another cut to the already-low interest rate of 0.5 per cent.
The goal was to provide more help to the struggling economy.
But their eventual decision to stand pat, Poloz recalled, came after mulling over what he considers an important factor: Ottawa’s promise to pump billions into infrastructure projects.
The central bank also justified holding the rate because the key indicator in its decision — inflation — has been unfolding as expected within its ideal target range.
But the rate decision suggests the bank could stay on the sidelines while it waits for the Liberal government’s spending package.
Details of the government’s infrastructure projects may have to wait until the spring federal budget, expected in March.
Questions remain whether the federal stimulus plan will be adequate — and deployed quickly enough.
Poloz declined to speculate on those questions because the scope and timing of the program remains unknown. As a result, the Bank of Canada left out the potential positive impacts of any fiscal measures in its fresh forecasts released Wednesday.
For now, the central bank has lowered its 2016 economic growth projection — as measured by real gross domestic product — to 1.4 per cent, down from its fall prediction of two per cent.
But any fiscal measures, Poloz says, would likely help the stubbornly sluggish economy, which he believes suffered a “significant setback” mostly due to falling commodity prices.
That means the bank’s 2016 real GDP forecast could still receive a bump.
“Yes, you should treat it as an asterisk,” Poloz told a news conference when asked whether the projection could change once the federal infrastructure plan is announced. “The direction is clear. The government says that it will do something.”
Bank of Canada governor Stephen Poloz addresses a news conference in Ottawa Wednesday.