Bank holds rate, sees better growth, risks

OTTAWA — The Bank of Canada held its trendsetting interest rate unchanged on Wednesday, despite a recent run of stronger-than-expected data, saying it believes the economy has yet to show it can stick to the higher growth trajectory.

In holding the rate at 0.5 per cent, the central bank said it also considered significant uncertainties still weighing on its outlook, including the potentially adverse impacts of the U.S. economic agenda.

Canadian growth exceeded the bank’s expectations and it now predicts real gross domestic product will expand at an annual rate of 2.6 per cent in 2017 — up from its January forecast of 2.1 per cent.

The recent improvement, it said, was largely fuelled by unexpectedly robust residential investment as well as temporary factors such as the resumption of expenditures in the energy sector and the consumer-spending lift from bigger child-benefit cheques.

However, the bank noted export growth was uneven and that there were signs of weakness in areas like business investment and within underlying employment indicators such as hours worked and wages.

“While the recent rebound in GDP is encouraging, it is too early to conclude that the economy is on a sustainable growth path,” the bank said in a news release that explained its interest rate decision.

TD Bank senior economist Brian DePratto said the bank is attempting to “throw cold water” on discussion that the economy has been improving.

“The growth outlook may be sunnier, but it seems to be all about the negatives for Governor Poloz,” DePratto said in a research note.

“Poloz remains focused on the soft spots in Canadian labour markets and exports, and is not yet ready to declare Canada ‘out of the woods’ when it comes to unevenness in economic growth.”

Beyond 2017, the bank predicted growth will moderate and become more balanced.

It anticipates greater contributions from exports and business investment. The bank also expects the powerful pace of household spending — particularly in residential investment — to eventually slow next year as debt levels and borrowing costs rise.

For this year, however, the bank believes hot housing markets in cities like Toronto will help residential investment deliver a “significantly higher” contribution to Canada’s growth performance than it had anticipated in January.

The bank also warned that climbing real estate prices in the Toronto area appear to now be driven, in part, by speculation.

Economic growth, it said, is now expected to expand by 1.9 per cent in 2018, down from the bank’s January forecast of 2.1 per cent, and to hit 1.8 per cent in 2019.

The future, however, looks murky.

The statement said the bank’s governing council was “mindful of the significant uncertainties” faced by the Canadian economy.

In its quarterly monetary policy report, which was also released Wednesday, the bank said its outlook once again factored in some of the effects caused by ongoing unknowns around the potential introduction of U.S. changes, especially in relation to trade and fiscal policies.

With the timing of any U.S. policy changes still unclear, the bank said its base-case projection includes only the estimated impact of “prolonged and elevated trade policy uncertainty” on trade and investment in Canada and internationally.

Changes under discussion in the U.S. include the renegotiation of the North American Free Trade Agreement, corporate and personal tax cuts, regulatory easing and a potential border tariff.

The bank said Canadian firms “remain wary” over potential U.S.-related developments that could increase protectionism and reduce competitiveness in the event of corporate tax reductions and regulatory changes.

Due to an expected additional drag on global investment connected to U.S. trade policy uncertainty, the report included slightly lower projections for export growth in 2017 and 2018 compared to the bank’s earlier predictions.

The bank also pointed to the U.S. trade-policy unknowns, and the fact it now expects them to drag on longer than expected, in its decision to revise down its prediction for business investment in 2017.

“A notable increase in global protectionism remains the most-important source of uncertainty facing the Canadian economy,” the bank said.

Follow @AndyBlatchford on Twitter.

Andy Blatchford, The Canadian Press

Just Posted

Flu cases steadily climb in Central Alberta

So far the number of Central Albertans admitted to hospital with the… Continue reading

CP Holiday train makes stops in Central Alberta

The popular train will feature entertainment from Colin James and Emma-Lee

Auditor general flags Royal Military College for costs, cadet behaviour

The Royal Military College of Canada has taken another blow to its… Continue reading

After death of 8th child, Ikea relaunches dresser recall in U.S and Canada

NEW YORK — Ikea relaunched a recall of 29 million chests and… Continue reading

Red Deer agency supporting for LGBTQ2S+ youth

New report on LGBTQ2S+ youth from the Office of the Child and Youth Advocate

VIDEO: Replay Red Deer: Nov. 19

Watch news highlights from the week of Nov. 13

Innisfail girl goes missing again

RCMP are looking for a missing Innisfail teenager. Taylor Lapointe, 15, was… Continue reading

Red Deer Christmas Bureau to help 1,300 children this year

Demand is high, but Red Deer always provides

CP Holiday train makes stops in Central Alberta

The popular train will feature entertainment from Colin James and Emma-Lee

Kittens rescued after allegedly being tossed from vehicle

Couple finds abandoned kittens new home through Facebook

VIDEO: ‘Party bus’ goes up in flames in Vancouver

Fire crews responded to the late night blaze

Chicken crosses B.C. road, stops traffic

Rooster makes early morning commuters wait in Maple Ridge

Red Deerian honours her brother who died in a motorcycle collision

Houaida Haddad is encouraging Red Deer residents to donate blood

Most Read


Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month