Bank of Canada holds interest rate, views oil slump as temporary soft patch

OTTAWA – The Bank of Canada is leaving its trend-setting interest rate unchanged today at 1.75 per cent as the sharp decline in oil prices temporarily dims its economic outlook for the coming months.

Before long, however, the central bank expects the economy to expand with renewed vigour and it stresses more rate hikes will be necessary over time.

In its first policy announcement of 2019, the bank says the recent drop in crude prices will result in slower-than-expected growth in an economy that has otherwise been performing well.

The bank is now projecting growth to be just 1.7 per cent this year, down from its October forecast of 2.1 per cent – but looking ahead it anticipates fresh momentum starting in the second quarter of 2019 and strong numbers in 2020.

Governor Stephen Poloz has been gradually raising rates since mid-2017 – but the pace at which future increases arrive remains a big question.

The central bank says the timing of its next hike will depend on several factors – with a particular focus on developments in the oil markets, the Canadian housing sector and global trade policy.

The Bank of Canada has estimated it will no longer need to raise rate once it reaches a level of between 2.5 and 3.5 per cent. But Poloz has said this destination range remains “sufficiently uncertain” and could move up or down.