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Bank of Canada again keeps interest rates on hold

The Bank of Canada announced on July 13th, 2016 that it was keeping its trend-setting target overnight lending rate at 0.5 per cent.

The announcement repeated many of the themes from its announcements and Monetary Policy Reports (MPRs) published in late 2015 and early 2016. Chief among these themes is how the Bank is still counting on the continuation of low interest rates and stronger U.S. economic growth to buoy Canadian exporters amid ongoing weakness in Canadian business investment.

However, the Bank again reduced its annual forecast for Canadian economic growth in light “a weaker outlook for business investment and a lower profile for exports reflecting a downward adjustment to US investment spending”. It also recognized how recent economic growth was reduced by the Alberta wildfires; however, it expects Canadian economic growth will pick up in the third quarter as oil production resumes.

The Bank also recognized that inflation has recently been running slightly higher than it previously expected but noted that inflation “is still in the lower half of the Bank’s inflation-control range”. It expects that the increase in inflation due to past weakness in the Canadian dollar will be temporary and will “dissipate in late 2016”.

While the Bank judges that “the risks to the profile for inflation are roughly balanced”, it expressed concerns about “the implications of the Brexit vote”, which it described as being “highly uncertain and difficult to forecast.” Its implications may ultimately result in the need to lower interest rates. However, lower interest rates would also likely further raise concerns the Bank has about Canadians’ “financial vulnerabilities [which] are elevated and rising, particularly in the greater Vancouver and Toronto areas.”

With all of these factors in mind, there is nothing in the Bank’s latest policy interest rate announcement to suggest that it will begin to raise interest rates until well into 2017 at the earliest.

As of July 13th, 2016, the advertised five-year lending rate stood at 4.74 per cent, up 0.1 from both the previous Bank rate announcement on May 25th and from one year ago.

The next interest rate announcement will be on September 7th, 2016, with the next update to the Monetary Policy Report to be released on October 19th, 2016.


Source: CREA Feed

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