Canada Maintains Key Rate At 0.5%


The Bank of Canada held its overnight rate steady at 0.5 percent on May 23rd, 2017, saying inflation is broadly in line with projections and recent economic data have been encouraging. The decision came in line with market expectations. The Bank Rate was also left on hold at 0.75 percent and the deposit rate at 0.25 percent.

Statement by the Bank of Canada:

Inflation is broadly in line with the Bank’s projection in its April Monetary Policy Report (MPR). Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower. The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.

The global economy continues to gain traction and recent developments reinforce the Bank’s view that growth will gradually strengthen and broaden over the projection horizon. As anticipated, growth in the United States during the first quarter was weak, reflecting mostly temporary factors. Recent data point to a rebound in the second quarter.  The uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks.

The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.

All things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent.

Bank of Canada | Joana Taborda | joana.taborda@tradingeconomics.com
5/24/2017 2:05:02 PM