In a widely expected move, the Bank of Canada kept its benchmark rate unchanged on Wednesday, saying that it was yet to receive evidence that the economy would stick its current growth path. The central bank said that it was refraining from raising rates given the level of uncertainty which was clouding its outlook for the future, including the fallout of new U.S. economic policy.
At the same time, the Bank of Canada acknowledged that economic growth was surpassing its expectations. Recently released economic data bears out this fact and a section of analysts believe that the bank’s move is intended to preserve the competitiveness of the country’s exports. Given this backdrop, it makes good sense to invest in Canadian stocks benefiting from a booming economy.
Central Bank Keeps Key Rate Unchanged
The Bank of Canada kept its trendsetting overnight rate unchanged at 0.5%, stating that it was “too early” to believe that the economy had the ability to sustain higher growth. The central bank reiterated that it in its view, excess capacity was still present in the economy. It also cited prevailing uncertainty for its decision to hold interest rates. Foremost among these factors was uncertainty over the new U.S. administration’s economic policies.
At the same time, the bank raised its growth forecast for the year. The Bank of Canada now projects that GDP will increase by 2.6% in 2017, significantly more than its January estimate of 2.1%. A spurt in residential investment, as well some medium term factors such as the recommencement of spending in the energy sector is responsible for such an upward revision. However, the bank reduced its forecast for potential growth, citing the persistence of “weak investment.”
Multiple Growth Signals Imminent
The report was noteworthy because there was a word of caution for every positive pronouncement on the economy. Such a pattern was clearly visible even though the bank’s fresh projections mean slack will disappear within the first part of next year rather than mid-2018 as was projected earlier in January.
