Bank of Canada keeps interest rate unchanged, lowers growth profile

Bank of Canada maintained overnight rate target at 0.5 percent — unchanged since July 2015. However, the decision to hold rates was a close call. The Bank Rate is correspondingly 0.75 percent and the deposit rate is 0.25 percent.

Governor of Canada’s central bank, Stephen Poloz revealed that policymakers came close to the tipping point on Wednesday’s interest rate decision. In the end, they chose not to lower the key lending level because the “balance of risks” was still tilted toward uncertainty in the economy, he said.

Canadian economy is struggling with low commodity prices and weak global demand keeping growth subdued and providing few incentives for the Bank of Canada to adjust interest rates. Looking through the choppiness of recent data, the profile for growth in Canada is now lower than projected in July’s Monetary Policy Report.

Growth in exports over 2017 and 2018 are projected to be slower than previously forecast. The Bank expects Canada’s real GDP to grow by 1.1 per cent in 2016 and about 2 per cent in both 2017 and 2018. This projection implies that the economy returns to full capacity around mid-2018, materially later than the Bank had anticipated in July.

The Bank expects total CPI inflation to be close to 2 percent from early 2017 onwards, when these temporary factors will have dissipated, but downward pressure on inflation will continue while economic slack persists.