Bank of Canada announces rate

Fanny Rosenfeld

Governor of the Bank of Canada Stephen Poloz looks on during a press conference in Ottawa on Wednesday, July 13, 2016.

"In Canada, the dynamics of growth are largely as the Bank anticipated", the BOC said in a brief statement issued alongside its rate announcement.

He said the Bank of Canada's statement on Wednesday is "studiously cautious" in its outlook.

The central bank said global economic conditions appear to have strengthened over the past two months, even as uncertainty weighs on business confidence and investment in Canada's major trading partners.

The bank noted how Canada's economy experienced a healthy rebound in the third quarter from a slump earlier in the year. Federal Reserve, which is expected to raise its key interest rate.

"Unlike in past statements, the Bank refrained from making a statement regarding the risks to the inflation outlook, perhaps in part due to the elevated level of uncertainty about the direction of US fiscal and trade policy under the new Administration", said RBC deputy chief economist Dawn Desjardins in a note to investors.

Canada ships three-quarters of its exports to the USA, making President-elect Donald Trump's possible mix of fiscal stimulus and trade protectionism a key concern north of border.

Inflation is slightly below what the bank expected, largely due to lower food prices.

On the labor front, the BOC said, "There have been ongoing gains in employment, but a significant amount of economic slack remains in Canada, in contrast to the United States".

"Meanwhile, business investment and non-energy goods exports continue to disappoint", said the bank. Douglas Porter, chief economist for BMO Financial Group, doesn't think so.

The BoC held its benchmark interest rate at 0.5%, noting slack in the labour market and an expectation of moderate growth in Q4.

The Canadian dollar is little changed near 1.3270 per dollar following the announcement.

"The Bank's only reference to the US election was to point to the sharp rise in global bond yields that occurred since November 8 as markets priced in expectations that the new government will implement a fiscal stimulus plan that will support stronger economic growth".

The bank predicted the recent tightening of financing rules for real estate would help slow the continued rise in Canadian household debt.

To be sure, the statement accompanying the bank's rate decision doesn't roll out a lot of gloom. Its next decision, which will be accompanied by a new batch of economic projections, is scheduled for January 17.

Although the Canadian economy contracted 1.6% in the second quarter of 2016 following the Alberta wildfires, the economy has been resilient and rebounded to a 3.5% annualized rate in the third quarter tempering worries that recovery has been thrown off course.

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