The Bank of Canada is holding its key interest rate steady and its senior officials insist there’s more proof an economic pickup has followed the abrupt winter deceleration.
The central bank, as widely expected, kept its trend-setting rate at 1.75 per cent Wednesday — and governor Stephen Poloz appeared to be in no hurry to make a move, even as he pointed to economic improvements.
The bank said in a statement that there’s “accumulating evidence” the economy has been re-emerging in the second quarter of this year following a period when economic growth nearly came to a halt.
“Overall, recent data have reinforced governing council’s view that the slowdown in late 2018 and early 2019 was temporary,” the bank said.
Several recent economic indicators have been unexpectedly robust. Canada will receive another important piece of information Friday with the release of its economic growth report for the first quarter.
The central bank said data has shown the oil sector is beginning to recover, the national housing market is stabilizing and job growth remains strong. The numbers, it added, also point to growth in consumer spending, exports and business investment.
However, the economy also faces expanding trade risks, the bank said, following the escalation of international conflicts and Chinese restrictions on Canadian goods that are already having a direct impact on exports.
A diplomatic dispute that has festered for several months has led China to block some shipments of canola, pork and other products from Canada.
On trade, the bank noted that the removal of steel and aluminum tariffs as well as encouraging signs the updated North American free trade agreement is moving closer to ratification will be positives for Canadian exports and investment.
Policy-makers are also paying close attention to the high levels of debt weighing on Canadian households.
Taking these factors into consideration, the Bank of Canada said the current policy level is “appropriate.”
“Governing council will remain data dependent and especially attentive to developments in household spending, oil markets and the global trade environment,” the statement said.
Many economists expect the central bank to leave its key interest rate untouched until at least late in the year and perhaps longer. Some have predicted a rate cut will come before the next increase.
The next rate decision is scheduled for July 10, when the bank will also release its updated economic forecasts in its quarterly monetary policy report.
Last month, the weaker economic data led Poloz to set aside talk of rate increases.
The sudden down shift over the winter — caused mostly by a drop in oil prices — forced the central bank to cut its 2019 growth forecast. The reduction came after the economy ran at close to full tilt for most of 2017 and 2018 — a stretch that saw Poloz hike the interest rate five times.
Andy Blatchford, The Canadian Press