HOLD STEADY
Bank of Canada stays the course, keeping its key rate at 1 per cent while hinting at increases ahead,
OTTAWA— The Bank of Canada stuck with its trend-setting interest rate Wednesday — but it offered fresh, yet cautious, warnings to Canadians that increases are likely on the way.
The central bank has now left the rate locked at 1 per cent for two straight policy announcements after the strengthening economy prompted it to raise it twice in the summer.
In announcing its latest decision, the bank pointed to several recent positives that could support higher rates in the coming months. They included encouraging job and wage growth, sturdy business investment and the resilience of consumer spending despite higher borrowing costs and Canadians’ heavy debt loads.
On top of that, there’s increasing evidence in the economic data that the benefits from government infrastructure investments have begun to work their way through the economy, the bank said.
But on the other hand, the bank noted exports had slipped more than expected in recent months after a powerful start to the year, although it continues to predict trade growth to pick up due to rising foreign demand.
It also said the international outlook continues to face considerable uncertainty mostly because of geopolitical and trade-related factors.
“While higher interest rates will likely be required over time, (the bank’s) governing council will continue to be cautious,” the bank said in a statement Wednesday that accompanied its decision.
It will be “guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity and the dynamics of both wage growth and inflation.”
The bank said inflation, a key factor in its rate decisions, has been slightly higher than anticipated and could stay that way in the short term because of temporary factors such as stronger gasoline prices. Core inflation, which measures underlying inflation by omitting volatile items such as gas, has continued to inch upwards.
Following Wednesday’s announcement, some economists said they expected governor Stephen Poloz to wait until the spring before his next rate hike.
The next scheduled policy meeting is set for next month.
“The (Bank of Canada) appears very patient at this juncture, with little appetite to move in January despite the near-record low jobless rate,” BMO chief economist Doug Porter wrote in a research note to clients.
Others, however, seemed to think the bank could now raise the rate sooner than previously expected.
“Despite things seeming to line up for further near-term tightening, governor Poloz has chosen to maintain his optionality,” TD senior economist Brian DePratto wrote Wednesday.
“With economic growth appearing likely to exceed the bank’s 2.5-percent expectation for the fourth quarter of this year, things continue to point to a hike sooner rather than later. However, as today’s statement shows, nothing is a done deal until the day of the decision.”
Poloz raised rates in July and September in response to an impressive economic run that began in late 2016.