‘The Bank of Canada maintained a similar tone in its rate statement today even though activity indicators to close 2016 and in early 2017 have been generally stronger than anticipated.’ – Mark Chandler, Royal Bank of Canada
As markets expected, the Bank of Canada left its key interest rate unchanged at its policy meeting on Wednesday, pointing to significant uncertainties in the Canadian economy. The Central bank acknowledged that the economy probably expanded at a stronger-than-expected pace in the final quarter of 2016 but left its benchmark rate at a record low of 0.50%, saying that the economy remained below its production capacity and inflation growth was driven mostly by temporary factors. The Bank was forced to cut its key rate twice in 2015 in order to cope with a sharp fall in oil prices. The BoC said it would continue to monitor the risks outlined at its January policy meeting. Back in January, the Central bank indicated Donald Trump’s presidency as one of the biggest sources of economic uncertainty for Canada. Last month, the US President promised to start ‘tweaking’ the trade relationship between Canada and the US. However, his Wednesday’s speech to Congress provided no details on the matter. The United States is by far the largest destination for Canadian products, with over 75% of Canada’s total exports going to the US. After the statement , the Canadian Dollar hit its five week low against its US counterpart, as a higher probability of a rate hike by the Fed gave opportunity to the Greenback to climb against other currencies.
