Bank of Canada holds interest rate, drops growth forecast for 2019

The bank also cut its 2019 growth forecast

The Bank of Canada building is pictured in Ottawa on September 6, 2011. The Bank of Canada is keeping its key interest rate unchanged as it releases a downgraded 2019 growth forecast that includes a prediction the economy nearly came to a halt at the start of the year. (THE CANADIAN PRESS/Sean Kilpatrick)

The Bank of Canada has set aside discussion of interest rate hikes, at least until the economy re-emerges from what it predicts will only be a temporary slowdown.

The central bank kept its key interest rate unchanged Wednesday and appeared to be in no hurry to move the benchmark any time soon. Unlike the bank’s recent statements, the announcement made no mention of a need for future increases.

READ MORE: New mortgage rules still driving Fraser Valley home sales down: broker

The bank also cut its 2019 growth forecast, a number weighed down by its prediction the economy nearly ground to a halt at the start of the year.

The decision Wednesday to stand pat, which was widely expected, left the rate at a still-stimulative 1.75 per cent for a fourth-straight announcement. The pause has followed a strong stretch for the economy that saw governor Stephen Poloz introduce five rate hikes between mid-2017 and last fall.

The economy had been running close to full tilt for most of 2017 and 2018, the bank said, before a sudden deceleration in the final three months of last year.

Poloz said the changing conditions have made the bank ”data dependent in both directions.”

“Given where we are today we think that rates are appropriate for this outlook,” Poloz told reporters in Ottawa.

“If there was a new, negative disturbance — that would be something we’d have to consider as fodder for whether interest rates needed to be revised down.”

The soft patch, which was more severe than the bank anticipated in January, was largely caused by a drop in oil prices and unexpectedly weak numbers for investment and exports. It also underlined how weaker-than-expected housing and consumption bogged down the economy.

The negative effects have spilled into 2019, said the bank, which also released its latest quarterly projections Wednesday.

The bank is now predicting growth in real gross domestic product of 1.2 per cent for 2019, down from its January forecast of 1.7 per cent. It also projected growth at an annualized rate of just 0.3 per cent in the first three months of 2019.

Poloz, however, was optimistic about the rest of the year and beyond — once Canada gets past what he called a “detour.”

The bank predicted the economy to pick up its pace in the second quarter on expectations of stronger housing activity, consumer spending, exports and business investment. It expects the economy to build momentum through 2019 before returning to above-potential growth of 2.1 per cent in 2020 and two per cent in 2021.

Poloz described the tone of the closed-doors policy discussion among governing council members as “a little bit skeptical of some of the most-negative data” that’s been coming in. He added the skepticism also goes both ways, which is why incoming data will be important.

“By all bits of analysis it’s a temporary thing, but we need the proof,” he said.

“The data from here will tell us what to do. But if our forecast is right, which I firmly believe it is, (then) what that means is that interest rates are more likely to go up than down over time.”

The bank said it will pay close attention to the evolution of household spending, oil markets and global trade policy.

Even with the anticipated improvements, the bank avoided mentioning future rate hikes in its statement Wednesday like it had in the past.

“Given all of these developments, governing council judges that an accommodative policy interest rate continues to be warranted,” the bank said.

“We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive.”

The central bank’s March rate announcement said there was “increased uncertainty about the timing of future rate increases.” The January statement said the benchmark would need to rise over time to a so-called neutral range that had been estimated at between 2.5 and 3.5 per cent.

In addition to the change in the statement’s language, the central bank also updated its estimate Wednesday of the neutral — or destination — range, which is the preferred level when the economy is running at full capacity and when inflation is within its target zone of one to three per cent.

The bank said its new, slightly lower estimated range is between 2.25 and 3.25 per cent.

Many economists expect the bank to leave the interest rate untouched until at least late in the year, and some have warned a cut could arrive before the next increase.

The Bank of Canada will make its next policy announcement on May 29.

Looking ahead, the bank projects a gradual expansion of investment outside the oil and gas sector before it turns into solid growth in the second half of 2019. It expects the boost to come with companies’ responses to capacity constraints, higher operating profits and investment incentives from the federal and Ontario governments.

Exports of goods and services, in particular, are expected to grow with a lift from foreign demand, though the bank noted there’s still uncertainty given global trade tensions.

The bank predicts consumption to continue expanding along with growing wages — even though households are burdened with high debt loads — and for the dampening effects of recent housing measures to fade over time.

Andy Blatchford, The Canadian Press

Like us on Facebook and follow us on Twitter

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

RDKB issues evacuation orders for some residents on Granby River near Highway 3 bridge

The RDKB also issued evacuation orders for areas of Manly Meadows, Johnson Flats

RDKB issues evacuation alert for 1,100 Boundary properties

Warm weather and heavy rain could cause sections of Kettle River system to swell beyond 2018 levels

Possible Kermode Bear spotted near Castlegar

A local resident spotted the white-coloured bear while on an evening trail run on May 27

Two more Johnson Flats properties given evacuation alerts

Forecast graphs for Boundary rivers show another spike for week of June 1

Boundary non-profits now eligible for emergency funds

Local charities can apply to get grants from the $40,000 pot, managed by the Phoenix Foundation

VIDEO: Injured bald eagle rescued in B.C. First Nations community

Bird suspected injured in fight, whisked off to Coquitlam rehab

Toronto Raptors’ Ujiri says conversations about racism can no longer be avoided

Thousands have protested Floyd’s death and repeated police killings of black men across the United States

‘I’m afraid’: Witnesses of wolf attack on senior near Prince Rupert worried about safety

Frank Russ shows where the unprovoked wolf attacked his father

Protesters prepare to rally against racism in front of Vancouver Art Gallery

Rally is in response to the deaths of black Americans and a Toronto woman

Protesters rally against anti-black, Indigenous racism in Toronto

Police estimated the crowd to be between 3,500 and 4,000 and said there was no violence

Feds earmark $1.5M to support recovery of B.C., Indigenous tourism

B.C. money will be split between Vancouver Island and Indigenous tourism

‘We’re sick of it’: Anger over police killings shatters U.S.

Tens of thousands marched to protest the death of George Floyd

Join Kootenay family in virtual walk for Ronald McDonald House

“We always described it as our oasis in the middle of the desert,” Brigitte Ady shares.

Most Read