canadian-exports Photo: Roy Luck/Flickr

The Bank of Canada announced today that it is keeping the key interest rate target at 0.5 per cent, contrary to the expectations of some of the country’s biggest banks.

“The Bank’s Governing Council judges that the current stance of monetary policy is appropriate,” said the central bank in a statement earlier this morning.

Twice last year the Bank of Canada cut the key interest rate, which influences mortgage rates as it is the rate applied to day-to-day lending among the banks themselves.

The first 2015 cut caught many off guard. At the time, the rate had not been lowered since April 2009, when the central bank cut the key rate by 25 basis points to 0.25 per cent.

Following the 2009 cut, the rate gradually rose to a peak of 1 per cent, where it remained until January 2015.

Given oil prices have continued to fall since the most recent cut in July, a number of observers had predicted another 25-basis-point cut.

“Prices for oil and other commodities have declined further and this represents a setback for the Canadian economy,” the bank acknowledged in its statement.

But it also noted Canada is transitioning to a more export-driven economy, fueled in part by the Loonie’s tumble, which has sparked demand in the US.

“National employment remains resilient despite job losses in the resource sector and household spending continues to expand,” the bank added.

However, David Madani, economist for global market researcher Capital Economics, speculated a future cut in commentary published after the bank’s announcement.

“While fiscal stimulus will help to support economic growth, the Bank’s faith in its export-led recovery plan still looks misplaced,” he said.

“Accordingly, we wouldn’t rule out another rate cut in March or April at the latest.”

The bank is scheduled to announce its next target for the overnight rate on March 9th.

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