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Bank of Canada holds key interest rate at 0.5%

The Bank of Canada kept its benchmark interest rate unchanged at 0.5 per cent on Wednesday while reducing its growth outlook for the economy.

The central bank trimmed its outlook for growth this year to 1.1 per cent, from the 1.3 per cent it had forecast in July.

It cited slower short-term activity in the resale housing market coupled with soft Canadian exports as the reason for its reduced outlook.

“The recently announced federal measures to promote stability in the housing market are expected to lead to weaker resale activity in the near term and a modest change in the composition of residential construction toward smaller units,” the bank said in its October Monetary Policy Report, which was released in conjunction with the interest rate announcement.

It’s expected the anticipated slower resale activity would leave real gross domestic product about 0.3 per cent lower by the end of 2018.

Bank of Canada

The Bank of Canada is holding its benchmark interest rate at 0.5 per cent, it said Wednesday. (Chris Wattie/Reuters)

Meanwhile, Canada’s exports of goods posted gains in July and August, after a sharp contraction over the previous five months, but that was not enough to make up for previously lost ground, the bank said. 

Weak U.S. business spending and lower expectations for the housing market in the United States, Canada’s top trading partner, have led to a reduction in the bank’s outlook for growth in our exports over the next two years.

The downward cut to exports, including spillovers to demand here in Canada and to our imports, would lower real GDP by 0.6 per cent by the end of 2018.

The bank said it now expects the economy to grow by two per cent in both 2017 and 2018, saying the economy is now forecast to get back to full capacity around mid-2018, later than it said in July.

No pending hike seen

Douglas Porter, chief economist at BMO, doesn’t see the Bank of Canada boosting interest rates any time soon.

“This is a bank that has precisely zero appetite for rate hikes, and seems to be keeping a flame alive for the possibility of rate cuts, should the need arise,” Porter said in a commentary. 

“We continue to look for the bank to keep rates unchanged through next year, with the earliest possible move up not until 2018,” he said.

The Canadian dollar, which had been up 0.11 of a U.S. cent just prior to the interest rate announcement, jumped after its release, with the loonie rising 0.60 of a cent at 76.83 cents US.

Article source: http://www.cbc.ca/news/business/bank-of-canada-interest-rates-1.3811459?cmp=rss