The overnight rate will remain at 0.5%, the Bank of Canada announced May 25, but economic conditions have become less certain than they were at the time of the previous rate announcement in April.
Overall, the impact of the oil price slump is still being felt throughout the Canadian economy, but the effects have been “uneven,” the Bank said. Economic growth in 2016’s first quarter was in line with previous forecasts by Canada’s central bank, but the Bank said the disruption to the oil sector by wildfires in Alberta’s Fort McMurray area will stymie growth in Q2.
“The Bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 ¼ percentage points off real GDP growth in the second quarter,” the central bank said in a press release.
“The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins.”
Growth in the United States is expected to be solid after a shaky first quarter. Inflation is in line with the Bank’s expectations, with total CPI inflation increasing as a result of changes in the price of gasoline but remaining below the 2% rate target. Core inflation remains close to 2%.
Household vulnerabilities have increased, according to the Bank’s statement, but risks to the projection for inflation remain balanced.
“The Bank of Canada has kept an even keel through a choppy start to 2016—not becoming overly excited when the data showed strong, export-led growth early this year and, today, not sounding too pessimistic following a string of disappointing reports,” said Josh Nye, economist at RBC. “The Bank’s ‘rotation’ narrative has taken a hit, with non-energy exports now flat year over year and investment intentions pointing to weak private-sector capital spending this year, particularly in the manufacturing sector.
“But the Bank always expected that the shift toward stronger growth in the non-resource economy would be gradual and, as emphasized today, ‘uneven.’”
@EmmaHampelBIV
References:
https://www.biv.com/article/2016/5/bank-canada-holds- overnight-rate-steady-05- issues-/?utm_source=BIV+ Newsletters&utm_campaign= ec028e576c-Daily_Wednesday_ May_25_20165_25_2016&utm_ medium=email&utm_term=0_ 6d3015fdef-ec028e576c- 210798317
