Canada’s central bank kept its benchmark target for the overnight rate at 1.25 percent, as universally expected, and reiterated its guidance from January that it will maintain a slightly accommodative monetary policy stance to keep inflation on target and the economy operating close to its potential although “the economic outlook is expected to warrant higher interest rates over time.”
The Bank of Canada (BOC), which has raised its rate three times since July 2017 – most recently in January – said its governing council would “remain cautious in considering future policy adjustments” and be guided by the economy’s sensitivity to interest rates, economic capacity, the growth of wages and inflation.
Canada’s dollar has weakened this year in response to uncertainties around the ongoing talks about the North American Free Trade Agreement (NAFTA), with another bout of uncertainty injected into financial markets from President Donald Trump’s plans to slap tariffs on steel and aluminum imports.
“Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks,” BOC said, adding that global growth still remains solid and new spending by Washington along with tax cuts will boost growth this year and in 2019.
The Canadian dollar, known as the loonie, was trading at 1.299 to the U.S. dollar today, down 3 percent this year.
Headline inflation in Canada eased to 1.7 percent in January from 1.9 percent in December while core inflation has edged up, reflecting an economy that is operating near capacity, BOC said, adding that wage growth had firmed but is still below levels that would be typical in an economy with no slack.
Canada’s economy grew by 3.0 percent last year, in line with the BOC’s projection from January, with growth in the fourth quarter slightly weaker than expected due to higher imports while exports only made a partial recovery from a third quarter drop.
At its next meeting in April, the BOC will update its outlook to include the implications of the latest federal budget and a pulling forward of housing demand ahead of new mortgage guidelines and other policy measures.
The Bank of Canada released the following statement: