As was widely anticipated by economists, the Bank of Canada announced today that it would maintain its overnight rate target at 0.75 per cent.
The bank has kept its overnight rate target steady at 0.75 per cent since January when it surprised economists by slashing the 1 per cent rate it had maintained since September 2010. The January rate cut came as oil prices were in steady decline and the bank wanted to provide a cushion for the drop in employment and income expected to accompany a prolonged period of slumping oil prices.
Bank of Canada Governor Stephen Poloz has called falling oil prices “unambiguously negative for the Canadian economy.”
In today’s announcement, which was accompanied by the quarterly Monetary Policy Report, the central bank described Canadian economic output as “very weak” in the first quarter of 2015.
“The Canadian economy is estimated to have stalled in the first quarter of 2015,” the bank said in a press release.
“The Bank’s assessment is that the impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger. The ultimate size of this impact will need to be monitored closely.”
Real GDP growth is expected to measure 1.9 per cent in 2015 before rising to 2.5 per cent in 2016 and falling to 2 per cent in 2017, according to the bank.
Economists had predicted the bank would not change the current overnight rate in today’s announcement.
In a report published in March by TD Economics, economist Dina Ignjatovic wrote that “as oil prices begin to recover towards the end of this year and into 2016, business and consumer sentiment should follow suit.”
The resulting boost in economic activity back above 2 per cent in the second half of 2015 should allow the Bank of Canada to maintain the overnight rate through the remainder of the year and into 2016.
Ignjatovic said TD Economics does not expect a rate cut or hike until the final quarter of 2016.
Read the full Bank of Canada Monetary Policy Report here.