Economists expect Bank of Canada to hold its key rate at 0.5 per cent

The Bank of Canada is expected to keep its key interest rate on hold Wednesday following a string of better than expected economic data.

OTTAWA — The Bank of Canada is expected to keep its key interest rate on hold Wednesday following a string of better than expected economic data.

However, the continued weakness in oil prices and the turmoil on the global markets amid fears about the Chinese economy are expected raise concerns for the central bank, economists say.

Benjamin Tal, deputy chief economist at CIBC World Markets, said he’ll be watching to see what the Bank of Canada highlights in its rate announcement.

“It will be very interesting to see what the focus is,” Tal said.

Oil prices are lower than the Bank of Canada forecast in its July monetary policy report and Chinese economic weakness is expected to hurt commodity prices.

So, while the third quarter has been shaping up to show growth, the Canadian economy still faces challenges, Tal noted.

“They definitely will talk about the recovery in the third quarter, but I think that they probably won’t be as optimistic about the fourth quarter,” he said.

The central bank has cut the rate twice this year, most recently in July when it also downgraded its outlook for the Canadian economy.

Since then, Statistics Canada has reported that the economy contracted at an annual pace of 0.5 per cent in the second quarter, in line with the Bank of Canada’s expectations.

There has also been better than expected trade results for July and stronger than expected job numbers for August, pointing to an economy that has pulled out of the slump it had been in for the first half of the year.

The data adds up to expectations that the Canadian economy will grow in the third quarter after contracting for the first two quarters of the year, putting the country into a recession.

However, BMO senior economist Benjamin Reitzes said the volatility in financial markets in recent weeks “is hardly an encouraging sign for global growth.”

“The knock-on effect of China’s weakness on emerging markets and the resulting impact on commodity prices will be significant concerns for the Bank of Canada,” Reitzes wrote in a report.

“Look for the statement to highlight increased downside risk coming from emerging markets.”

Meanwhile, Tal also noted that the Bank of Canada’s core inflation rate has been above the two per cent for 12 straight months.

In its last monetary policy report, the central bank attributed it to “transitory effects” including the drop in the loonie compared with the U.S. dollar and some sector specific factors.

However, Tal said at some point it will be a concern.

“Since then the dollar went down and it might go down even more, especially with the Bank of Canada’s policy relative to the Fed,” Tal said.

Just Posted

Sunny weather improves farmers’ prospects

A harvester kicking up dust. It’s a picture that will bring a… Continue reading

Rural transit pilot project being considered

Penhold, Innisfail and Red Deer County councils to decide whether to go ahead with project

Red Deer fire station up for sale

Home sweet home at Fire Station 4

Most surveyed Innisfail residents give urban chickens the thumbs up

Town of Innisfail will discuss whether to allow backyard chickens on Monday

‘Mom I’m in trouble:’ Canadian, Brit face 10 years in jail for alleged graffiti

GRANDE PRAIRIE, Alta. — The mother of a Canadian who was arrested… Continue reading

Coyote on the prowl near Penhold

This coyote was out on the prowl in a field just west… Continue reading

Sky’s the limit as Calgary opens testing area for drones and new technologies

CALGARY — The sky’s the limit as the city of Calgary opens… Continue reading

Hi Mickey, ‘Bye Mickey: 6 Disney parks on 2 coasts in 1 day

ORLANDO, Fla. — Heather and Clark Ensminger breathed sighs of relief when… Continue reading

Court weighs ‘Apprentice’ hopeful’s suit versus Trump

NEW YORK — President Donald Trump’s lawyers hope to persuade an appeals… Continue reading

StarKist admits fixing tuna prices, faces $100 million fine

SAN FRANCISCO — StarKist Co. agreed to plead guilty to a felony… Continue reading

Annual pace of inflation slows to 2.2 per cent in September: Statistics Canada

OTTAWA — The annual pace of inflation slowed more than expected in… Continue reading

Jury finds Calgary couple guilty in 2013 death of toddler son

CALGARY — A jury has convicted a Calgary couple in the death… Continue reading

Most Read