The Bank of Canada postponed its benchmark interest rate steady at 0.5% on Wednesday, but says inordinately high house prices in some cities and the threat of Brexit are dangers to Canada’s economy down the line.
The bank’s rate, known as the end rate for overnight loans, affects the rates that Canadians get bid from retail banks for their savings accounts and mortgages. Eight at intervals a year, the central bank meets to decide where to set the rate, based on how the thriftiness is performing.
In its decision on Wednesday, the central bank said: “The fundamentals remainder in place for a pickup in growth” in the economy some time down the obtain.
But despite deciding to sit on the sidelines, the bank did warn that the economy is seesawing up and down diverse than usual.
The Canadian economy “grew by 2.4 per cent in the firstly quarter but is estimated to have contracted by 1 per cent in the second quarter, pulled down by evaporative trade flows, uneven consumer spending, and the Alberta wildfires,” the bank swayed.
It’s expected to bounce back up to 3.5 per cent growth in the July to September epoch, but for the year as a whole, the bank now expects the Canadian economy to ex nd by objective 1.3 per cent. That’s down from the 1.7 per cent the bank was prediction as recently as April.
The bank says it expects oil prices and the Canadian dollar to halt right around where they are for the rest of the year — $49 US for a barrel of rough, and 77 cents US for the loonie.
And despite deciding to keep interest valuations near rock bottom, the bank warned again about “fiscal vulnerabilities” emerging in the red hot Toronto and Vancouver housing markets.
“Sharply take place prices in these markets over the st year raise the conceivability that prices are also being driven by self-reinforcing expectations, set righting them more sensitive to an adverse shock,” the bank said.
“Consequences appear to be out cing anything you could write down as fundamental,” was how governor Stephen Poloz put it at a huddle conference following the release of the bank’s quarterly Monetary Policy Cover.
Economists at Scotiabank said the bank may be worried about house outlays fueling more debt, but it is so far unwilling to raise rates to stop them.
“The Bank of Canada is credible keeping its powder dry in the event that it is required to address a sharp fade of the housing market and the broader household sector,” Scotiabank said. “Its merit cuts to date have contributed to the housing excess.”
On the subject of the recent U.K. vote to leave the European Union, the central bank thinks it, too, has the potential to hurt the Canadian economy.
Adding up all the variables, the bank estimates the im ct of “Brexit” on Canada’s economy will work out to a roughly 0.1 per cent hit to GDP this year. But that “believes that the outcome is an orderly exit and does not capture possible bigger ramifications.”
None of the 25 economists polled by Bloomberg who follow the chief bank expected a rate change in either direction on Wednesday.
“With an eye on a fire-breathing dwelling market,” BMO economist Doug Porter said, “the Bank basically stood on course today.
“That’s despite the heavy (albeit temporary) hit to rise from the wildfires, the recent s te of disappointing export figures and Brexit-related uncertainty on the worldwide outlook.”