The country’s central bank announced December 3 that it will be keeping its overnight rate target at 1% – the same rate it has been for more than four years.
The Bank of Canada (BOC) said the Canadian economy is recovering, with stronger exports stimulating investment and employment.
“This suggests that the hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun,” the BOC said in a release.
“However, the lower profile for oil and certain other commodity prices will weigh on the Canadian economy.”
Inflation has risen more quickly than expected, the BOC said, due in part to a lower Canadian dollar. As well, increases in the prices of telecommunications and meat have added to overall price growth, but inflation remains below the 2% target.
The American economy continues to strengthen, which has boosted Canadian exports. The economy is not doing as well in other parts of the world, said the BOC, as disappointing growth has led to policy stimulus in some countries.
“Oil prices have continued to fall, due to both supply and demand developments,” the BOC said.
“In this context, global financial conditions have eased further.”
Michael Gregory, BMO managing director and deputy chief economist and head of U.S. economics, said the BOC’s announcement maintained its “neutral” policy stance for the time being.
“While the rough seas of lower oil prices loom on the horizon, Captain Poloz’s spyglass is revealing more buoyancy to come from stronger U.S. economic growth, a weaker loonie and the federal government starting to spend its fast-approaching budget surplus,” Gregory said.
“Despite all the dire warnings about falling oil prices – particularly the hits to capex and the terms of trade – the Bank is just not yet prepared to sound the alarm to batten down the hatches.
The Bank of Canada will make its next rate announcement on January 21, 2015.
