BS: Bank of Canada leaves interest rates unchanged for now as it awaits clarity on energy impact
OTTAWA — The Bank of Canada left its key interested rate untouched on Wednesday, saying it needs more time to assess the impact of the oil price collapse and a weaker-than-expected U.S. economy.
Governor Stephen Poloz — who surprised markets in January by dropping the bank’s lending level for the first time in almost five years — continues to stress the fallout from the plunge in crude will be “front-loaded” and stall growth in the first quarter of this year, before picking up over the next three-month period.
“Financial conditions for Canadian households and firms remain highly stimulative. The Canadian dollar has strengthened in recent weeks in the context of higher oil prices and a softer U.S. dollar,” the bank said in a statement.
“While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the bank expects a return to solid growth in the second quarter,” it said.
“If these developments are sustained, their net effect will need to be assessed as more data become available in the months ahead.”
Most economists agree the next rate move will not until at least early 2016, following a long-anticipated rate hike by the U.S. Federal Reserve. The wording of Wednesday’s statement supported the view that Canadian policymakers that any rate adjustment will come later than sooner.
“Although a number of complex adjustments are under way, the bank’s assessment of risks to the inflation profile has not materially changed,” policymakers said in Wednesday’s statement. “Risks to financial stability remain elevated, but appear to be evolving as expected.”
Despite that assessment, overall annual inflation — one of the central bank’s principle policy focus — was running at 0.8 per cent in April, the smallest increase since October 2013 and below its target range of one-to-three per cent.
Core inflation — another key reading that strips out many volatile items, such energy and food products, which policymakers uses to gauge underlying price trends — rose 2.3 per cent last month. “Core inflation remains above [the target of] two per cent, boosted by the pass through effects of past depreciation of the Canadian dollars,” the bank said.
In January, Poloz said he was dropping the trendsetting overnight lending rate to 0.75 per cent from one per cent, where it had been since September 2010, saying it would provide “insurance” for the economy against the expected impact of the oil collapse.
