Bank of Canada Holds Rates Steady, Remains Cautious

Lloyd Doyle
December 6, 2017

The bank did say that higher interest rates will likely be required over time, with wage growth and inflation being important factors.

The central bank has now left the rate locked at one per cent for two straight policy announcements after the strengthening economy prompted it to raise it twice in the summer.

That sentence repeats almost word-for-word the language of its statement in October, when the bank also left rates unchanged.

Image: Facebook profile of Bank of Canada.

The bank noted buoyant global growth, higher oil prices and eased financial conditions, but warned that the "global outlook remains subject to considerable uncertainty, notably about geopolitical developments and trade policies".

Economists fear Canada's export-driven economy would be hurt by the demise of the North American Free Trade Agreement, which U.S. President Donald Trump has targeted for overhaul.

The rest of the bank's latest statement is mainly about how the economy is pivoting towards more sustainable growth.

The Canadian dollar dipped against its USA counterpart on Monday after the Bank of Canada maintained its key benchmark interest rate at one per cent.

Business investment continued to contribute to growth after a strong first half, and public infrastructure spending is coming on.

"Meanwhile, despite rising employment and participation rates, other indicators point to ongoing - albeit diminishing - slack in the labour market", the bank said.

Inflation, a key factor in the BoC's interest rate decisions, has been slightly higher than anticipated and could stay that way in the short term because of temporary factors such as stronger gasoline prices, the central bank said. But a cool down of the hottest housing markets in Toronto and Vancouver is exactly what the central bank wants in the face of record household debt.

At 11:21 a.m. ET, the Canadian dollar was trading at 78.24 US cents, down 0.56 cents or 0.71 per cent.

Chances of a rate hike in January fell to 28 per cent from 41 per cent before the announcement, the overnight index swaps market indicated.

The labor productivity of Canadian businesses fell by 0.6 per cent in the third quarter, the second consecutive decline, as the number of hours worked grew faster than business output.

Other reports by Iphone Fresh

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