Bank of Canada maintains key rate at 1.75 per cent

08 Décembre, 2018, 23:27 | Auteur: Auguste Feret
  • Jacqueline Hansen Senior Business Reporter

Looking at the positive side, Poloz says the latest oil-price shock also arrives at a time when Canada's economy is running close to full tilt and the unemployment rate is at a 40-year low. The decision follows the quarter-point increase at the bank's previous policy meeting in October.

The bank raised its benchmark rate, known as the target for the overnight rate, to 1.75 percent level in October, the fifth time since July 2017 that it chose to hike. But its statement was more guarded than the last one in October and cited the possibility that recent negative economic developments may mean the economy isn't running up as much against capacity constraints as previously thought.

"(They) will also factor importantly into our decisions about the future stance of monetary policy", the bank said Wednesday in a statement. Policy-makers stressed the damaging effects of trade disputes on the economy.

The central bank can raise the interest rate to prevent inflation from climbing too high.

The Bank of Canada has estimated it will no longer need to increase the interest rate once it reaches a level of between 2.5 per cent and 3.5 per cent, but Poloz has said this destination range remains "sufficiently uncertain" and could move up or down.

Stephen Poloz, Governor of the Bank of Canada, returns to the Bank of Canada after holding a press conference at the National Press Theatre in Ottawa on Wednesday, Oct. 24, 2018.

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Economists say they will be closely watching Poloz's speech on Thursday for signs of how events are affecting his view of the path forward.

"We think the odds of a hike at the January 9 meeting, in just a bit more than a month, has fallen significantly".

When it comes to crude, the central bank blamed the steep slide in prices on the combination of geopolitical developments, uncertainty about the outlook for global growth and the expansion of American shale oil production. But the dramatic slump in oil prices, and efforts by the Alberta government to remedy the situation with production cuts, have muddied the picture for the economy.

The bank's rate directly affects the rates that Canadian consumers get from retail banks.

Market watchers, many of whom had expected the bank to increase the rate in January, now believe the recent economic developments will delay the timing of future rate hikes. Beyond the energy sector, the central bank also sees weakening momentum coming out of the third quarter, and historic revisions from Statistics Canada imply that "there may be additional room for non-inflationary growth".

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