Bank of Canada holds key interest rate as it waits on Ottawa’s fiscal boost

OTTAWA -The divergence of economic policy in North America is widening.

Canada's economy not from the woods yet: What analysts say about today’s rate decision

What does today’s decision mean for future rate hikes, our rising loonie and also the outlook for that economy? Economists give their takes

While Canada’s central bank is holding off adjusting its key interest rate as it awaits federal stimulus details, america has put down on a path to higher lending levels.

For now, governor Stephen Poloz and the policymakers are possessing their template assessment of the state from the economy, last updated in January, insisting on Wednesday there isn’t any urgency to regulate their trendsetting interest rate, now at 0.5 percent.

That’s a choice widely shared by analysts, and uses two quarter-point cuts in official borrowing levels last year – in January and July – that were intended to buffer the fallout from the global oil-price collapse.  

Wednesday’s decision marks a small – but telling – shift in Canada since the rate decision this January, when Poloz and his team chose to go against broad market expectations of lower rates of interest, and kept rates on hold.

Instead, policymakers are taking a wait-and-see approach around the new federal government’s plans for multi-billion-dollar spending and a string of annual deficits proposed through the Liberals in their October election campaign. Ottawa will unveil its 2016-17 budget on March 22.

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Economic weakness in 2015 – highlighted by a first-half technical recession and continuing pressure from oil prices – has lessened somewhat, using the year ending within an unexpected, though still mild, bounce back in December’s gross domestic product data.

“Financial market volatility, reflecting heightened concerns about economic momentum, appears to be abating,” policymakers said Wednesday.



“Although downside risks remain, the financial institution still expects global growth to strengthen this season and then. Simultaneously, the reduced level of oil prices will continue to dampen development in Canada and other energy-producing countries.”

The Bank of Canada acknowledged that “in light of shifting expectations for monetary policy in Canada and also the Usa, the Canadian dollar has appreciated from its recent lows.”  

That shift in policy is highlighted through the U.S. Federal Reserve’s decision to begin its long-stalled push for higher lending levels – an indication it’s certain that economic growth and improved employment levels have gained traction.

On Wednesday, our central bank said Canada’s employment picture has “held up despite job losses in resource-intensive regions, and household spending continues to underpin domestic demand.”

However, overall business investment – something the bank has been counting on to assist lift economic growth – “remains very weak because of retrenchment within the resource sector.”

Canada’s policymakers will wait until their next rate decision in April – following the Trudeau government’s budget release – before judging the likely impact of stimulus paying for GDP.

“At least as vital is always that commodity prices have recovered somewhat, and also the economic data examines little bit better, and inflation has nudged up – and also the housing industry is still extremely hot, at least over a couple of markets,” said Douglas Porter, chief economist at BMO Capital Markets.

“And I personally think that’s sufficient cause to allow them to stay on the sidelines.”

However, any rate adjustment at that time could be premature and Poloz and his team might want to wait until the July rate announcement and it is quarterly Monetary Policy Report prior to making moving.

Like most Canadians, the central bank “continues to anticipate significant fiscal stimulus in the federal budget,” said Sherry Cooper, chief economist at Dominion Lending Centres.

Policymakers “will incorporate their assessment of the economic results of such stimulus in their April projection,” she added. “End of story.”

gisfeld@nationalpost.com
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