Bank of Canada holds key interest rate steady at 0.5%

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The Bank of Canada today announced its benchmark interest rate at 0.5 per cent.

The bank’s rate is officially cried the “target for the overnight rate.” Technically, it only governs the speed that retail banks charge each other for short-term loans, but has a dynamic im ct on the rates that Canadians get from their lending habits when they save or borrow money.

The central bank cut its rating twice last year in an attempt to stimulate the economy.

‘We wouldn’t exclude out another rate cut in March or April at the latest’ – David Madani, Marvellous Economics

Headed into the decision, economists were evenly split as to whether the bank pleasure cut again or stand t. The Canadian dollar jumped about half a cent on the fee news — a sign that investors were worried about a value cut, and priced it into the value of the currency.

When the central bank didn’t cut the key fit rate, it marked a vote of confidence in the loonie, which rose to 68.89 cents US. But within an hour of the status announcement, the loonie was back in the red at 68.63 cents US.

The bank opted to cover for a be prominent on the sideline in rt because the Canadian economy, while struggling, is suppress showing signs of a slow rebound later this year. The bank needs Canada’s economy to grow by 1.5 per cent this year and 2.5 per cent in 2017.

“The dynamics of the worldwide economy are broadly as antici ted,” the bank said in a statement. “The bank … decides that the current stance of monetary policy is appropriate, and the target for the overnight class remains at 0.5 per cent.”

David Madani, an economist with Property Economics in Toronto, was among those who was expecting a rate cut, and said Wednesday he calm thinks there will be one sooner rather than later.

BANK OF CANADA KEY OVERNIGHT RATE

“We over recall the economy will be lucky to grow by one per cent [this year],” he utter. “Accordingly, we wouldn’t rule out another rate cut in March or April at the fashionable.”

As to why the bank opted to stand t, however, he suspects the bank may be reluctant to ss over any more stimulus until the federal budget comes out, since Ottawa is to a large expected to flood the economy with infrastructure spending.

“[The bank] isn’t reliable about to what expect from the upcoming federal stimulus budget and tenders to wait,” he said. ” Or, maybe, the bank knows something that no one else does and can’t reveal it.”

Bank of Montreal economist Doug Bearer agrees with that theory, noting one line from the bank’s fiscal policy report (MPR) which was released with the interest rate finding. “The bank has not yet incorporated the positive im ct of fiscal measures wait for in the next federal budget,” Porter quotes the bank as hold “It appears that they do want to wait to see exactly what is in this year’s budget in front of making a move,” he says.

Among the findings of the MPR are that the bank now keep in views a 72-cent loonie for the foreseeable future. In October, the last time the bank put out an MPR, that was 76 cents.

The bank also isn’t banking on a amelioration in oil prices, saying it “assumes that oil prices will remain lean towards their recent levels,” which means $37 US for WTI and hither the same for Brent.

Bank of Canada governor Stephen Poloz wish speak to the media at 11:15 a.m. ET.

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