Bank of Canada keeps rates unchanged, sounds slightly cautious note on growth

The Bank of Canada kept its main policy lever, its deposit rate, at 0.5%, against market expectations, although it did sound a slightly more cautious note on domestic growth prospects in the very short-term.

Economists had been anticipating a 25 basis point reduction in the deposit rate to 0.25%.

Headline consumer prices remained near the lower bound of the BoC’s target range, with weakness in the currency having only partially offset economic slack and low consumer energy prices, the BoC said in a statement.

Nonetheless, rate-setters in Montreal expected the rate of consumer price inflation would rise to about 2.0% in the early part of 2017, while so-called ‘core’ prices stayed close to 2.0%.

Risks were present but global growth was expected to trend higher starting this year, Canadian policymakers said.

“While risks to the world outlook remain and have been reflected in sharp price movements in a range of asset classes, global growth is expected to trend upwards beginning in 2016,” the BoC added.

However, the monetary authority did say it now expected economic growth not to return to above-potential until the second quarter of 2016, although the process of shifting Canada’s growth away from resource activity “was underway”.

Likewise, the outlook for demand and output was described as highly uncertain, with financial vulnerabilities said to be edging higher.

The central bank’s base-case projection was now also pointing to the output gap closing later than the BoC had anticipated in October.

Despite all of the above, “the risks to the profile for inflation are roughly balanced” the monetary authority said.

As of 15:50 the US dollar was slightly higher on the day versus the Canadian dollar, rising 0.09% to 1.4581.