Central bank holds rate at 1.75%
Sharp drop in oil prices ends the rate-hiking path and may even cast doubt on future hikes
OTTAWA — The Bank of Canada left its trend-setting interest rate untouched Wednesday as fresh economic developments — including the sharp drop in oil prices — threatened to delay future hikes.
The central bank’s decision Wednesday maintained its trendsetting rate at 1.75 per cent.
It followed a quarter-point increase at the bank’s previous policy meeting in October.
Thanks to the strengthened economy, the bank has been on a gradual rate-hiking path for more than a year and has already raised the benchmark five times since the summer of 2017.
But the timing of upcoming rate increases, the bank said, will now depend on several new factors that have emerged.
The elements include the extent of the crude-price slump, the ability of corporate investment to pick up its pace and how much room the overall economy still has left to grow without stoking inflation.
“(They) will also factor importantly into our decisions about the future stance of monetary policy,” the bank said Wednesday.
The new considerations add to other factors the bank has been studying to determine just how quickly it should raise the rate.
The bank repeated Wednesday that future hikes also hinge on changes in global trade policies as well as how higher interest rates from past increases affect consumption and housing.
The central bank raises the interest rate to prevent inflation from climbing too high. The
Bank of Canada has estimated it will need to gradually raise the interest rate until it reaches a level between 2.5 and 3.5 per cent.
Heading into Wednesday’s announcement, however, market watchers had widely expected governor Stephen Poloz to hold off until at least his January meeting before introducing the next rate increase.
Following the decision, many experts now expect Poloz to wait even longer.
Sebastien Lavoie, Laurentian Bank’s chief economist, said the wording of the Bank of Canada’s statement signals a shift from its message at the October meeting when it seemed to be looking “more aggressively” at speeding up the pace of rate hikes.
“Now, they’re not sure anymore,” Lavoie said.
“We think the odds of a hike at the Jan. 9 meeting ... has fallen significantly.”
TD senior economist Brian DePratto wrote about Wednesday’s rate decision in a research note: “To be sure, while everything points to a January hike being off the table, the path thereafter is less clear.”
DePratto added that Poloz’s speech in Toronto on Thursday will carry more significance than usual given all the moving parts in the Canadian economy.
When it comes to crude, the central bank blamed the steep slide in prices on the combination of geopolitical developments, uncertainty about the outlook for global growth and the expansion of American shale oil production.
The price of western Canadian oil, the bank added, has fallen further than other benchmarks because of transportation constraints that have led to production cuts.