Bank of Canada keeps interest rate unchanged

FILE- The Bank of Canada is expected to hold the interest rate at 1.75 per cent

To be sure, the central bank is clearly aware of the issue, acknowledging Wednesday the economy may be more sensitive to higher rates than initially thought.

All but one of 18 economists surveyed by Bloomberg expect the central bank to keep its benchmark rate at 1.75 per cent in a decision at 10 a.m.in Ottawa. "So, that's why I'm not going to explain how long it means".

In a widely expected decision, the Bank of Canada maintained its target for the overnight rate at 1.75% and noted that the Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target.

Thanks to the stronger economy, Poloz has raised the bank's key interest rate target five times since mid-2017 to keep inflation from creeping up too high.

Apart from revising down its oil price projections and warning about the uncertainties surrounding oil price trends this year, the World Bank also noted that global economic growth is expected to slow to 2.9 percent in 2019 from 3 percent in 2018, as worldwide trade and investment weaken. "Indicators of demand should start to show renewed momentum in early 2019, leading to above-potential growth of 2.1 percent in 2020", it said.

The central bank says the timing of its next hike will depend on several factors - with a particular focus on developments in the oil markets, the Canadian housing sector and global trade policy.

"However, like us, the Bank of Canada expects a pop-back to above trend growth as 2019 progresses", said TD Economics in a research report. 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. Crude oil gained sharply today on positive headlines relating to China & U.S trade talks.

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The other key uncertainties about oil prices will be the impact of the US sanctions on Iran when the waivers end in early May, as well as the production in Venezuela, which has been steadily falling over the past two years.

"If the world economy is going to slow down. then that's going to affect every country".

Consumption and housing investment have also been weaker than expected as lending rates increased. The Bank of Canada will also release its quarterly economic forecasts Wednesday, followed by a press conference from Governor Stephen Poloz.

It predicted exports and non-energy business investments to "grow solidly".

In addition, global benchmark prices for oil have been about 25 per cent lower than assumed in the October Monetary Policy Report (MPR), reflecting sustained increases in USA oil supply and, more recently, increased worries about global demand, the bank said.

The bank listed these factors as population growth fuelled by immigration, low unemployment rates, cheaper gasoline prices and wage gains. Three months ago, the Bank of Canada expected 2.1% economic growth in 2019.

Canada's sharp deceleration in wage growth since last spring has also been highlighted by experts as a concern for the economy - particularly since the tightened labour market should translate into higher wages.

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