The Bank of Canada announced this morning that they will be keeping the benchmark interest rate at 0.5 percent, citing that “the stimulative effects of previous monetary policy actions are working their way through the Canadian economy.” While Canada saw two consecutive quarters of shrinking GDP in the first half of 2015, signs of recovery are evident in the biggest two-month gain in exports since 2011 and the creation of 193,000 jobs in the 12 months through August – signs which are atypical of normal recession patterns.
According to the Bank of Canada Governor Stephen Poloz, “economic activity continues to be underpinned by solid household spending and a firm recovery in the United States, with particular strength in the sectors of the U.S. economy that are important for Canadian exports.”
Canada’s resource sector faces continual adjustments in response to lower prices for oil and other commodities, the Bank stating that these “adjustments are complex and are expected to take considerable time.” The drop in energy prices has kept total inflation near the bottom end of the Bank’s target range of one to three percent, while core inflation has remained near two percent due to the drop in the Canadian dollar and some sector-specific factors.
Although Economists are predicting a stronger third quarter for Canada, questions are being raised about the overall pace of global recovery amid uncertainty of growth prospects in China and other emerging markets. This increased uncertainty has led to heightened volatility in financial markets.
The Bank of Canada’s next rate announcement will take place on October 21st, at which point they will also release their next Monetary Policy Report outlining their updated outlook for the economy and inflation within Canada.