Bank of Canada maintains overnight rate but downgrades outlook

By Emma Crawford Hampel

Canada’s central bank is keeping the overnight rate at 0.5 per cent, where it has been since July 2015, but has downgraded the country’s economic outlook through the end of 2017.

The Bank of Canada said it expects GDP to grow 1.1 per cent in 2016 overall, down from its call of 1.3 per cent in the July rate decision. Growth forecasts for the last half of 2016 alone were cut from 2.8 per cent to 1.5 per cent. In 2017, growth has been downgraded to 2.0 per cent from the 2.2 per cent previously forecast. Growth in 2018 is still forecast at 2.1 per cent.

The downgrades were a result of slower near-term housing resale activity and lower export expectations.

“The federal government’s new measures to promote stability in Canada’s housing market are likely to restrain residential investment while dampening household vulnerabilities,” the Bank said in a news release.

“Recent export data are improving but are not strong enough to make up for ground lost during the first half of 2016, despite the effects of the Canadian dollar’s past depreciation.”

Declining global demand and “a composition of US growth that appears less favourable to Canadian exports” are pushing export expectations downward.