Key interest rate target holds at 1.25%
Bank of Canada cautious amid trade uncertainty
OTTAWA— The Bank of Canada kept its key interest rate target on hold Wednesday as it pointed to a climate of broadening, important unknowns around trade.
In explaining its decision to maintain its benchmark at 1.25 per cent, the central bank noted that recent trade-policy developments have created thickening clouds around the outlook for the Canadian and global economies.
U.S. President Donald Trump recently added threats of steel and aluminum tariffs to an already uncertain context for Canada that includes concerns over NAFTA’s renegotiation and fears over competitiveness, following corporate tax-cut announcements south of the border.
The Bank of Canada also noted fourth-quarter growth was weaker than expected.
The Bank of Canada said the weak growth was largely due to higher imports, and that it’s still assessing impacts on housing markets from new policies, including tighter mortgage rules.
But it also said global growth continues to be solid and broad-based, the economy is running at near capacity, inflation is close to target and wage growth has improved, although still remains below where many expect it should be.
Ahead of the announcement, governor Stephen Poloz was widely expected to hold off moving the rate because of weaker economic numbers in recent weeks and the expanding trade uncertainty.
Poloz has introduced three rate hikes since last summer, including an increase in January. The moves came in response to an impressive economic run for Canada that began in late 2016.
Earlier this month, Poloz noted in a speech that central bankers have had to grapple with the ongoing “era of heightened uncertainty.”
In its statement Wednesday, the bank reiterated it expects more hikes to be necessary over time, but that the governing council will remain cautious when considering future decisions.
The bank’s next rate announcement is scheduled for April 18, when it will also publish its updated economic projections. It said impacts on inflation and growth from commitments in last month’s federal budget would be incorporated into its April projections.