Bank of Canada holds interest rate at 0.5 per cent

Canada’s economy was a major disappointment in the first half of 2016.
The same can be said for the performance in the United States — and global growth wasn’t any better. Even so, the Bank of Canada is not budging
from its interest-rate stand, saying Wednesday it is prepared to weigh the heavy impact of the devastating Alberta wildfires and weaker exports against the anticipated boost from
consumer spending and recouped oil output. But that hint of optimism is unlikely to
convince governor Stephen Poloz and his monetary council to begin pushing their
trendsetting lending level higher. It now sits at 0.5 per cent, where it has been idling since July 2015. In fact, many private-sector forecasters are
not expecting any movement until well into next year. “While Canada’s economy shrank in the second quarter, the bank still projects a substantial rebound in the second half of this
year,” BOC policymakers said in their closely watched rate statement, one of eight issued
throughout the year. “Exports disappointed even after accounting
for weaker business and residential investment in the United States, adjustments in the resource sector, and cutbacks in auto production,” the central bank said. Still, the economy “is expected to rebound in the third quarter as oil
production recovers, rebuilding commences in Alberta and consumer spending gets an
additional lift from Canada Child Benefit payments.” Douglas Porter, chief economist at BMO Capital Markets, said “hope springs eternal for the bank, especially on the export front.” “They still want to be upbeat, but I think reality is beating them on the head a bit.”
Poloz and his team also expect the economy to benefit from the federal
government’s infrastructure program once the spending “starts to have more impact,”
which should help overall growth in the fourth quarter.
“Global growth in the first half of 2016 was slower than the bank had projected
in its July Monetary Policy Report, although the bank continues to expect it to strengthen
gradually in the second half of this year.” Many economists are forecasting a rebound
of about 3.5 per cent in gross domestic product in the third quarter of this year, following a wildfire-led contraction of 1.6 per cent in the previous three-month period.
The fourth quarter should produce growth of around two per cent, according to forecasters, closely matching the central bank’s July forecast.
A huge cloud remains over Canada’s housing sector, however, as consumers continue to pile on debt to purchase homes at record-high prices, especially in Vancouver and Toronto.calgary-real-estate-home-sales-housing-prices


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