Bank of Canada keeps interest rate at 0.5%
The decision was made based on uncertainty in the global climate, despite stronger conditions
OTTAWA— The Bank of Canada is holding its benchmark interest rate at 0.5 per cent as it sees the stronger world economy continuing to face “undiminished” uncertainty.
In making the scheduled announcement Wednesday, the central bank said its decision also came as the economic environments in Canada and abroad had largely moved forward in line with its expectations.
“Economic data suggest that global economic conditions have strengthened,” the bank said in a statement.
“However, uncertainty, which has been undermining business confidence and dampening investment in Canada’s major trading partners, remains undiminished.”
The bank noted how Canada’s economy experienced a healthy rebound in the third quarter from a slump earlier in the year.
It also underscored its prediction that Canada would see “more-moderate growth” over the final three months of 2016.
The decision to maintain the rate was widely anticipated by experts and came ahead of an announcement next week by the U.S. Federal Reserve, which is expected to raise its key interest rate.
Last week, Bank of Canada governor Stephen Poloz addressed how the bank views the uncertainty following the U.S. election. He said it was too soon for the central bank to factor the potential impacts of president-elect Donald Trump’s election win into its decision making.
The bank said inflation, which it carefully analyzes when making rate decisions, was slightly below what it had anticipated, in large part because of lower food prices. The statement pointed to recent gains in Canadian employment, but noted that considerable economic slack remained present when compared to the United States.
On the downside, the central bank said that business investment and non-energy goods exports in Canada continue to “disappoint.”
Overall, BMO chief economist Doug Porter said Wednesday he thought the bank’s statement had a relatively “downbeat” tone. But he said he believes the chances of a rate cut remain minimal and expects the bank to keep the rate as is throughout 2017.
The bank’s statement also highlighted recent steps taken by the federal government to try and boost economic growth.
“Consumption growth was robust in the third quarter, supported by the new Canada Child Benefit, while the effects of federal infrastructure spending are not yet evident in the (gross domestic product) data,” the bank said in its brief, one-page statement. It predicted that the recent tightening of financing rules for real estate would help slow the continued rise in Canadian household debt.
This was the bank’s final rate announcement for 2016. Its next decision is scheduled for Jan. 17.