No Change in Bank of Canada Interest Rate

September 7, 2016

Canada’s economy last quarter suffered a setback that monetary officials didn’t anticipate. In fact, real GDP contracted 1.6% at a seasonally adjusted annualized rate compared to 1Q. Exports were weaker than anticipated and remain a concern. But officials expect a bounceback in the second half of 2016. A released statement assumes a recovery in oil production and also cites rebuilding in Alberta from the wildfires, a boost in consumption from child benefit payments, and planned federal infrastructure spending. Nonetheless, the statement concedes that risks surrounding the baseline inflation profile have tilted somewhat to the downside since the July review. One deterrent to easing further is the housing market in Vancouver. All things considered, officials decided that the low 0.5% overnight target interest rate remains appropriate.

The next scheduled rate announcement on October 19 will coincide with the release of a new quarterly Monetary Policy Report. Fourteen months have passed since the interest rate was last changed in July 2015. Both in that month and in January 2015, it was cut by 25 basis points, reversing two of the three such-sized hikes undertaken in the summer of 2010. Canada is one of several central banks since the Great Recession that tried to normalize interest rates only to reverse part or all of the tightening moves.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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