Bank of Canada holds interest rate steady, hints low rates could stick around

by - 2 min read

Bank of Canada holds interest rate steady, hints low rates could stick around

by - 2 min read

by

The Bank of Canada kept its benchmark interest rate at 1.75 per cent on Wednesday.

Economists who monitor the bank weren’t expecting any change to the rate, which the central bank meets to decide on every six weeks.

The bank tends to cut its rate when it wants to stimulate the economy, and hikes it when it wants to slow down an overheated one.

“Growth during the first half of 2019 is now expected to be slower than was anticipated in January,” which is why the bank is keeping its rate low, to help stimulate the economy, it said.

In January, the bank was expecting Canada’s economy to grow by 1.7 per cent this year. On Wednesday, it downgraded that lukewarm forecast to a chillier 1.2 per cent.

Economists think that’s a recipe for lower rates, which is why “an accommodative policy interest rate continues to be warranted,” the bank said.

The bleak outlook caused the value of the Canadian dollar to lose half a cent, to trade below 74 cents US.

“The bank’s pivot away from its hiking bias was sharper than expected today, leaving the Canadian dollar trading weaker and yields lower on the day,” CIBC economist Royce Mendes said.

Trading in investments known as overnight index swaps imply there’s now zero chance of a rate hike this year. Traders think there’s about a 10 per cent chance of a cut as early as next month, and by September those odds jump to more than one in three.

Stephen Poloz, the Bank of Canada’s governor, will answer questions from the media at a news conference in Ottawa starting at 11:15 a.m. ET on Wednesday morning, to further explain the bank’s line of thinking.

This story originally appeared on CBC

Top