Bank of Canada keeps key interest rate unchanged

The Bank of Canada held its key interest rate at 1.75% on Wednesday

It was the ninth consecutive meeting at which the central bank opted to stay the course, a remarkable streak considering what's happening elsewhere.

In making its rate decision in October, the Bank of Canada said it considered the possibility of cutting its key interest rate target as insurance against an economic slowdown, but decided it wasn't worth the cost. The waves of monetary stimulus have receded lately, but a palpable sense of worry remains.

Canada's central bank offered no such guidance.

The Canadian dollar will add to this year's gains over the coming 12 months as a potential easing of global economic risk reduces pressure on the Bank of Canada to provide support for Canada's commodity-linked economy, a Reuters poll showed.

Meanwhile, a robust Canadian economy has allowed the Bank of Canada to keep interest rates on hold, even though many of its worldwide competitors have eased monetary policy amid concerns about the global economy.

Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, called the Bank of Canada's statement "glass half full" when compared with what he said was a more cautious tone in October. To cushion the blow to our economy, the Bank of Canada cut its policy rate twice.

The output gap is the difference between the Bank of Canada's estimate of what the Canadian economy can produce without stoking inflation and the current level of output.


CPI inflation in Canada remains at target, and measures of core inflation are around 2 percent, consistent with an economy operating near capacity. In contrast, the USA economy continued to improve.

The trade wars had quieted as the bank's Governing Council wrapped up its latest round of deliberations earlier this week. He also noted that despite often pursuing different rate paths over the past decade since the financial crisis and recession, including this year, the rates of the two central banks are now essentially even.

"In part, this is because inflation and [the Bank of Canada's economic] outlook remain on target, and also because our policy rate was lower to begin with", he said.

The central bank's decision comes on the back of significant Canadian household debt.

The pace of economic growth in Canada slowed in the third quarter, falling to a 1.3-percent annualized rate from a 3.5-percent annualized rate in the second quarter, Statistics Canada announced last week. Policymakers observed that consumer spending and housing remained sources of "strength". But officials indicated they weren't quite ready to believe investment is as solid as the new numbers indicate.

"The Bank will examine to what extent this indicates a renewed investment momentum", said the Bank of Canada.

The Bank of Canada's next interest rate decision is set for January 22, when it will also update its outlook for the economy and inflation as part of its quarterly monetary policy report.

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