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Bank of Canada to Keep Key Interest Rate at 0.5%

The Bank of Canada announced this morning it’s keeping its target overnight lending rate at 0.5%.

Canada’s central bank hasn’t moved its trendsetting rate since July 2015, but despite growing economic optimism (oil prices have rebounded, Canada’s housing market is on fire, retail sales are up, the jobless rate is at a two-year low), the bank says a number of things still “cloud” both the global and domestic economic outlook. Economists predict the bank won’t raise rates until the second quarter of 2018.

In a short statement, the bank acknowledged the global economy is picking up speed and that the Canadian economy is showing “encouraging” data on the business investment, consumer spending, and labour market fronts. As expected, a continued decline in food prices (due to “intense” retail competition) pushed inflation temporarily lower, but it’s still “broadly” in line with the bank’s 2% target.

The bank nodded to concerns outlined in its April Monetary Policy Report, including global protectionist trade policies, “ongoing competitiveness challenges” with exports, and excess slack in our economy compared to the United States.

In its last interest rate announcement on May 3, the U.S. Federal Reserve said it would leave its own key interest rate unchanged after slower than expected growth in the first quarter of 2017, but reiterated that it’s still committed to raising rates two more times this year. The Fed last raised rates by a quarter of a percentage point to 0.75% on March 15, noting a strengthening labour market and expanding economic activity.

The Bank of Canada’s next interest rate announcement is scheduled for July 12, and will include its latest Monetary Policy Report.

Source: Bank of Canada