Bank of Canada pares back optimism as it holds interest rates steady
The Bank of Canada walked back some of its enthusiasm about the economic outlook amid a crisis in the nation’s oil sector, keeping interest rates unchanged Wednesday and suggesting there may be less urgency to tighten monetary policy in the future.
The Ottawa-based central bank held its overnight benchmark rate at 1.75 per cent, reiterating it expects to eventually remove all monetary stimulus The oil sector crisis has changed the Bank of Canada’s economic outlook.
from the economy. But its statement was more guarded than the last one in October and cited the possibility that recent negative economic developments may mean the economy isn’t running up as much against capacity constraints as previously thought.
The less-confident tone is an acknowledgment of growing risks, particularly in the oil
sector, to what has largely been a strong expansion, casting doubt on whether the economy can cope with higher borrowing costs. The Canadian dollar plunged.
The slowing economy “implies a longer time horizon for returning to neutral,” said Andrew Kelvin, senior Canada rates strategist at Toronto-dominion Bank in Toronto. This “materially reduces the odds of a January rate hike.”
Citing moderating global growth, a “materially weaker” outlook for the oil sector, a faster-than-expected deceleration of inflation, policy-makers said “there may be additional room for noninflationary growth.”
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