Bank of Canada keeps key rate on hold at 0.5 per cent as resource sector adjusts

Household spending and an improving U.S. economy are underpinning the Canadian economy, the Bank of Canada said Wednesday in announcing it will keep its key interest rate on hold at 0.5 per cent.

OTTAWA — Household spending and an improving U.S. economy are underpinning the Canadian economy, the Bank of Canada said Wednesday in announcing it will keep its key interest rate on hold at 0.5 per cent.

The central bank said a lower Canadian dollar has helped absorb some of the impact of lower commodity prices, which have been hurt by increasing uncertainty about growth prospects for China and other emerging markets.

“The stimulative effects of previous monetary policy actions are working their way through the Canadian economy,” said the bank, which twice cut its key interest rate by a quarter of a percentage point earlier this year.

Wednesday’s stand pat decision by the central bank was in line with the expectations of economists.

Sherry Cooper, chief economist at Dominion Lending Centres, said the central bank had been disappointed with the export sector, but more recent data has shown considerable improvement.

“That is a result of the decline in the Canadian dollar as well as the strength in the U.S. economy, both of which helped offset the negative effects of the havoc that has been wreaked in the oil sector,” she said.

Cooper said if the signs of growth for the third quarter hold steady, the Bank of Canada will likely keep its key rate on hold for a “considerable period.”

However, the Bank of Canada noted that increased uncertainty about growth in China and other emerging markets is raising questions about the pace of global recovery.

“Movements in the Canadian dollar are helping to absorb some of the impact of lower commodity prices and are facilitating the adjustments taking place in Canada’s economy,” the central bank statement said.

The bank noted that the country’s resource sector is continuing to adjust to the lower prices, with some spillover to the rest of the economy, and that this transition is expected to take considerable time.

“Today’s statement suggests the bank remains nervous about the impact of the recent slide in commodity prices however (it) appears to be willing to be patient,” said Royal Bank assistant chief economist Dawn Desjardins.

“Encouragingly, the bank did not indicate any predisposition to revise the forecast issued in July for the economy to return to positive growth in the third quarter with this growth continuing to (the) end (of) 2017 despite the recent slip in oil prices.”

Statistics Canada reported earlier this month that the economy contracted in the second quarter in line with the Bank of Canada’s expectations.

That was followed by better than expected trade results for July and a stronger than expected jobs report for August that suggested the economy is pulling out of the slump that saw it contract in the first two quarters, putting the country into a recession.

Inflation has also ticked higher in recent months as rising food prices have offset lower gasoline prices, while core inflation — which excludes some volatile items — has been above two per cent for a year.

In its statement Wednesday, the Bank of Canada said inflation has “evolved in line” with its July monetary policy report.

Total inflation has remained near the bottom end of the Bank of Canada’s target range of between one and three per cent, due to the drop in energy prices. However, core inflation has been close to two per cent due to the drop in the Canadian dollar and some sector-specific factors, the bank said.

The Bank of Canada’s next rate announcement is set for Oct. 21 when it is also scheduled to release an updated outlook for the economy and inflation in its monetary policy report.

Just Posted

Shanna Lydiard is upset to have had mail delivery cut off last month to her West Park street because of water main reconstruction. Delivery is to resume by May 19 at the latest, according to the City of Red Deer. (Photo by LANA MICHELIN/Advocate staff).
Red Deer woman frustrated by mail delivery suspension due to construction

Shanna Lydiard said residents shouldn’t have to drive across the city for their mail

Innisfail-Sylvan Lake MLA Devin Dreeshen received his COVID-19 vaccine Tuesday at Jackson’s Pharmacy in Innisfail. (Devin Creeshen Twitter photo)
COVID-19: Most local MLAs have received their first vaccine shot

Alberta’s NDP is encouraging all MLAs to get vaccinated and publicly promote… Continue reading

Alberta continues to wrestle with high COVID-19 case numbers. (NIAID-RML via AP)
Red Deer up to 858 active cases of COVID-19

Province reports additional 1,799 cases of the virus

Bo's Bar and Grill owner Brennen Wowk said the hospitality industry is looking for more clarity from the province around what conditions must be met to allow for restaurants reopening.
(Advocate file photo)
Frustated restaurant owners want to know government’s reopening plan

Restaurant owners feel they are in lockdown limbo

The Bowden Institution medium security facility near Bowden has 15 active COVID-19 cases. (THE CANADIAN PRESS/Jeff McIntosh)
15 active COVID-19 cases at Bowden prison

Bowden Institution has had 36 positive cases this year with 21 recovered and no deaths

Red Deer Mayor Tara Veer and several members of city council helped kick off the spring Green Deer cleanup campaign on Wednesday. Veer said city workers do their best to keep the city looking good, but need volunteer help to get rid of litter that has blown into bushes onto road sides over the winter. (Photo by LANA MICHELIN/Advocate staff)
Red Deer city councillors launch spring Green Deer campaign

Volunteers are needed to keep the city looking good

Ottawa Senators centre Josh Norris, right, celebrates his game-winning overtime goal against the Toronto Maple Leafs with left wing Brady Tkachuk Wednesday May 12, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Norris scored winner, Senators beat Maple Leafs 4-3 in Andersen’s return from injury

Norris scored winner, Senators beat Maple Leafs 4-3 in Andersen’s return from injury

Rafael Nadal, of Spain, holds up the trophy after beating Daniil Medvedev, of Russia, in the final at the Rogers Cup tennis tournament, in Montreal on Sunday, Aug. 11, 2019. THE CANADIAN PRESS/Paul Chiasson
Tennis Canada could move top tournaments to US if Toronto, Montreal plan not approved

Tennis Canada could move top tournaments to US if Toronto, Montreal plan not approved

Philadelphia Flyers' Travis Sanheim (6) and Brian Elliott (37) celebrate with teammates after the Flyers won an NHL hockey game against the New Jersey Devils, Monday, May 10, 2021, in Philadelphia. (AP Photo/Matt Slocum)
Puck luck? Hockey’s secrecy makes betting on NHL a gamble

Puck luck? Hockey’s secrecy makes betting on NHL a gamble

FILE - John Davidson, left, president of the New York Rangers, and Rangers general manager Jeff Gorton pose at a news conference in New York, in this Wednesday, May 22, 2019, file photo. The New York Rangers abruptly fired president John Davidson and general manager Jeff Gorton on Wednesday, May 5, 2021 with three games left in the season. Chris Drury was named president and GM. He previously served as associate GM under Davidson and Gorton. (AP Photo/Seth Wenig, File)
New York Rangers fire coach Dave Quinn, 3 assistants

New York Rangers fire coach Dave Quinn, 3 assistants

Denis Shapovalov, of Canada, returns a shot from Ilya Ivashka, of Belarus, during the Miami Open tennis tournament, Saturday, March 27, 2021, in Miami Gardens, Fla. THE CANADIAN PRESS/AP-Wilfredo Lee
Canadian Denis Shapovalov books meeting with Nadal in third round of Italian Open

Canadian Denis Shapovalov books meeting with Nadal in third round of Italian Open

United States goalie Alex Cavallini (33) deflects Canada's Marie Philip Poulin (29) shot during the first period in the women's 3-on-3 game, part of the NHL hockey All-Star weekend, Friday, Jan. 24, 2020, in St. Louis. Hockey Canada's roster of players invited to try out for the 2022 Olympic women's hockey team indicates the squad will be experienced up front and less so on the back end. THE CANADIAN PRESS/AP-Jeff Roberson
Hockey Canada announces players invited to try out for women’s Olympic team

Hockey Canada announces players invited to try out for women’s Olympic team

Atlanta Braves pitcher Max Fried works against the Toronto Blue Jays during the first inning of a baseball game Wednesday, May 12, 2021, in Atlanta. (AP Photo/Ben Margot)
Hernández 2 HRs as Ryu, Blue Jays improve to 5-0 vs Braves

Hernández 2 HRs as Ryu, Blue Jays improve to 5-0 vs Braves

Toronto Maple Leafs goaltender Jack Campbell (36) makes a save as Maple Leafs defenceman TJ Brodie (78) and Montreal Canadiens forward Tyler Toffoli (73) look for the rebound during first period NHL hockey action in Toronto on Saturday, May 8, 2021. The Leafs and the Canadiens will meet in the playoffs for the first time in 42 years when the 2020-21 NHL post-season gets underway.THE CANADIAN PRESS/Nathan Denette
Leafs, Habs will face off in long-awaited playoff rematch, Oilers will face Jets

Leafs, Habs will face off in long-awaited playoff rematch, Oilers will face Jets

Most Read