Bank sticks with key rate

Cen­tral bank hands off stim­u­lus to Trudeau

The Guardian (Charlottetown) - - CANADA -

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.

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