Bank of Canada holds key interest rate as Ottawa preps for fiscal boost

Stephen Poloz holds off on making any moves to see what the federal budget will hold

The Bank of Canada marker is pictured in Ottawa on September 6, 2011. (THE CANADIAN PRESS/Sean Kilpatrick)

The Bank of Canada marker is pictured in Ottawa on September 6, 2011. (THE CANADIAN PRESS/Sean Kilpatrick)

OTTAWA – The Bank of Canada is sticking with its key interest rate as it waits to assess economy-boosting measures expected in the upcoming federal budget.

The central bank kept its trend-setting interest rate locked at 0.5 per cent in its scheduled announcement.

The bank says while stubbornly low oil prices continue to hurt the economy, it notes inflation appears on track and that 2015 closed out with better-than-expected growth.

But the Bank of Canada says financial vulnerabilities have crept higher and the commodity-price slump has left overall business investment very weak.

The bank says that next month it will evaluate the impact of fiscal stimulus measures Ottawa is expected to include in the March 22 budget.

Related: What’s changed since Poloz’s first rate cut

The federal government has made billions of dollars worth of commitments — such as infrastructure spending — that it insists will help revive economic growth and create jobs.

The Bank of Canada also stood pat on its key rate in January, after lowering the benchmark twice in 2015.

In explaining the January decision, governor Stephen Poloz said senior bank officials entered pre-announcement deliberations with a bias toward making another cut to the already-low interest rate of 0.5 per cent.

Poloz said despite the weak outlook, the eventual decision to hold firm came after they considered an important factor: the federal government’s promise to pump billions into infrastructure projects.

In January, the central bank downgraded its 2016 growth projection to 1.4 per cent from its fall forecast of two per cent. At the time, it also predicted the economy to eventually bounce back and expand by 2.4 per cent in 2017.

Heading into Wednesday’s announcement, there was little expectation of a change to the Bank of Canada’s overnight rate target. Economists, however, were looking for fresh information as to how it views the state of the economy.

The bank’s statement noted how oil and some commodity prices have rebounded in recent weeks, nudging up the weakened Canadian dollar.

“With these movements, both the price of oil and the exchange rate have averaged close to levels assumed in the January (monetary policy report),” the statement said.

“At the same time, the low level of oil prices will continue to dampen growth in Canada.”

Related: Free money? Watch what you wish for.

The bank also said Wednesday that financial market volatility appears to be “abating” and economic growth in the United States has continued to progress as expected.

Canada-wide employment, meanwhile, has held up despite job losses in resources industries and non-energy exports are strengthening particularly in sectors that benefit from the lower dollar, the bank said.

Overall business investment remains feeble, the statement added, “due to retrenchment in the resource sector.”

The Bank of Canada’s next scheduled rate announcement is April 13, when it will also release its quarterly monetary policy report.


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