Bank of Canada maintains the overnight target rate at 0.5%
The Bank of Canada announced it is maintaining the overnight rate at ½ per cent. The global economy is expected to gradually strengthen from 3 per cent in 2016 to 3 ½ per cent in 2017-18. Prices of other commodities and oil are slightly above levels than what was assumed by the Bank in January, but still remain below the historical average.
The first quarter GDP growth appears to be strong, but that strength is likely to reverse in the second quarter due to temporary factors. Household spending continues to expand, while business investment is still shrinking due to declines in the energy sector, but is expected to rebound later in the year.
The adjustment figures in the Bank’s annual review of the economy’s potential resulted in a lower estimated range for growth output. The effect of these combined developments would have been a modest downgrade of the Bank’s outlook. However, the fiscal measures that were announced in the federal budget in March will have a positive impact on the GDP. The Bank is now projecting a real GDP growth of 1.7 per cent in 2016, 2.3 per cent in 2017 and 2.0 per cent in 2018.
“Overall, the risks to the profile for inflation are roughly balanced. Meanwhile, financial vulnerabilities continue to edge higher, in part due to regional shifts in activity associated with the structural adjustment underway in Canada’s economy. “