Canada Keeps Key Rate on Hold for Second Time as Growth Outlook Lowered Amid Oil Slowdown

11:07 AM, Jan 9, 2019 — Canada’s central bank kept its benchmark lending rate on hold Wednesday while lowering its view for 2019 growth as the country’s economy faces the impact of lower oil prices.

The Bank of Canada maintained its target for the overnight rate at 1.75%, the second straight hold and in line with the consensus on Econoday. The rate was last increased by 25 basis points in October.

“The drop in global oil prices has a material impact on the Canadian outlook, resulting in lower terms of trade and national income,” the Stephen Poloz-led bank said in a statement. “While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada’s oil sector is projected to weaken further.”

Global oil prices have plunged amid rising output of the commodity and downbeat projections for economic growth, which can curb demand for crude. Last month, top producing province Alberta said output would be cut to clear up excess supplies that widened the gap between US benchmark West Texas Intermediate and Western Canadian Select crude.

The bank is projecting 2019 gross domestic product growth of 1.7%, down 0.4 percentage points from the outlook made in October. “Indicators of demand should start to show renewed momentum in early 2019, leading to above-potential growth of 2.1% in 2020.”

The bank’s governing council said it “continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target” of 2%.

“The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy,” the Bank of Canada said.

While the bank said the Canadian economy “has been performing well overall” with growth running close to potential and the labor market has been strong, but consumption spending and housing investment “have been weaker than expected” amid adjustments in housing markets.

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