Bank of Canada pares back op­ti­mism as it holds in­ter­est rates steady

StarMetro Vancouver - - CANADA & WORLD - Theophi­los Ar­gi­tis

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.”

Ma­te­ri­ally Weaker

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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