Bank of Canada keeps interest rates on hold
Poloz expects economy to rebound as oil production rises later this year
The head of the Bank of Canada is nothing if not patient.
With the economic adjustment to the oil-price collapse “proving to be uneven” — and output further hampered by the Alberta wildfires — governor Stephen Poloz is still managing to hold the line on expectations, and interest rates.
On Wednesday, Poloz and his policy council chose to keep the central bank’s trendsetting lending level at 0.5 per cent — unchanged since July and unlikely to be adjusted at all this year, and perhaps not until well into 2017.
Even as the economy continues to struggle with meagre job creation, a recent slide in retail sales and disappointing business investment, the governor appears to see some light ahead.
That’s because Poloz and his policy team — with help from the federal government’s stimulus program — are hoping the clouded outlook will dissipate in the second half of this year, an assessment that is broadly in line with forecasts by private-sector analysts.
“The (domestic) economy’s structural adjustment to the oil-price shock continues, but is proving to be uneven,” Poloz said in a statement accompanying the interest-rate announcement.
He acknowledged the recent increase in oil prices is due “in part, because of short-term supply disruptions.”
Once tallied, Canada’s output in the second quarter of this year likely declined, but the central bank sees a rebound in the third quarter, “as oil production resumes and reconstruction begins.”
Many economists agree there will beast-rong-snap-back in GDP during the July-to-September period.
“It was nice of them to give us some early estimate on the impact of the wildfires on GDP growth. But, as expected, they noted that (impact) is transitory and — again — a rebound in the third quarter will largely offset things,” said Benjamin Reitzes, senior economist at BMO Capital Markets. “Based on the April MPR (Monetary Policy Report), it suggests we’ll get a small negative for the second quarter and a reversal of that in the third quar- ter — somewhere north of three per cent — maybe 3.5 per cent or better.”
Some of the Bank of Canada’s optimism comes from anticipated “solid growth” this year in the United States, by far Canada’s biggest trading partner.
“In the United States, despite weakness in the first quarter, a number of indicators, including employment, point to a return to solid growth in 2016,” the bank said.
Wednesday’s rate statement made no mention of the likely economic impact of the federal government’s multibillion-dollar stimulus program.
Nevertheless, Poloz has stated previously that the central bank will continue to monitor Ottawa’s spending plans.
Policy-makers will update their forecasts for the economy on July 13, when the bank again issues its next rate decision, along with the quarterly Monetary Policy Report — an outlook of domestic and global conditions affecting economic growth and possible threats to those forecasts.
“We continue to believe the BoC is on hold for the next year with rate hikes only coming into view in the second half of 2017,” said BMO’s Reitzes.