Canada’s central bank left its benchmark target for the overnight rate steady at 1.75 percent, as widely expected, but cast doubt over its previous plan for further rate hikes increases as economic growth in the first half of this year is now expected to be weaker than forecast due to a “sharper and more broadly based” slowdown in the last quarter of 2018.
The Bank of Canada (BOC), which kept its rate steady in December and January after raising its rate in October for the fifth time since July 2017, said the current outlook continues to warrant a policy interest rate that is below its neutral range, a sharp change to its guidance in January that the rate will need to gradually rise into a neutral range to meet the inflation target.
“Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook,” BOC said, adding “with increased uncertainty about the timing of future rate increases,” it will be closely watching household spending, oil markets and global trade policy.
Canada’s economy slowed sharply in the fourth quarter of 2018 as gross domestic product grew by only 0.1 percent from the previous quarter as business investments fell, growth in household spending slowed further and prices of crude oil exports fell.
After depreciating from September 2017 through 2018, the Canadian dollar, known as the loonie, has firmed this year though it has dropped in the last week and fell in response to the BOC’s policy decision.
The Canadian dollar fell to 1.34 against the U.S. dollar, down 1.5 percent this year and down 6 percent since the start of 2018.
The Bank of Canada released the following press release: