Bank Of Canada Leaves Key Interest Rate Unchanged

Cornelia Mascio
Dicembre 6, 2018

The Bank of Canada has chose to keep its benchmark interest rate right where it is while it digests the impact of its previous policy decisions and the cooling economy. The bank raised its rate to that level in October, the fifth time since the summer of 2017 that it chose to hike. The elements include the extent of the crude-price slump, the ability of corporate investment to pick up its pace and how much room the overall economy still has left to grow without stoking inflation. When the central bank hikes its rate, it makes borrowing more expensive - but it's good news for savers.

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

The bank also underlined several recent economic developments that it will now take into account.

"The persistence of the oil-price shock, the evolution of business investment and the bank's assessment of the economy's capacity will also factor importantly into our decisions about the future stance of monetary policy", the bank said Wednesday in a statement. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

Heading into Wednesday's announcement, however, market watchers had widely expected governor Stephen Poloz to hold off until at least his January meeting before introducing the next rate increase.

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.

DePratto added that Poloz's speech in Toronto on Thursday will carry more significance than usual given all the moving parts in the Canadian economy right now.

On oil, 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.

"Activity in Canada's energy sector will likely be materially weaker than expected", the statement said.

It also says recent data show that the economy has less momentum heading into the final quarter of 2018 related to factors such as a drop in business investment that the bank largely connects to trade uncertainty last summer.

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