The Bank of Canada decided to hold interest rates steady at its meeting Wednesday, citing the pressure of global trade tensions and some temporary factors boosting the Canadian economy.
The decision to hold at 1.75% was expected by most economists, who were perhaps keener to assess the tone set by Governor Stephen Poloz.
The BoC now expects global GDP to grow by 3% in 2019 and to strengthen to around 3.75% in 2020 and 2021, with the US slowing to a pace near its potential. Escalation of trade conflicts remains the biggest downside risk to the global and Canadian outlooks.
The Canadian economy appears to have done better than expected in the second quarter partly due to the reversal of weather-related slowdowns in the first quarter and a surge in oil production. Although these are temporary boosts, the BoC expects the economy to return to growth around its potential as expected this year.
Housing market contributing to growth
At the national level, the housing market is stabilizing the bank said, although it noted that there are still significant adjustments underway in some regions.
“We’re seeing signs that the housing market is improving in the Greater Toronto Area, while prices and activity are still adjusting to more sustainable levels in the Greater Vancouver Area, and Alberta’s market continues to adjust to lower oil prices,” said deputy governor Carolyn Wilkins.
She added that “At the same time, interest rates on five-year fixed-rate mortgages have fallen recently to around where they were five years ago, which is relevant for people buying a new house or renewing their mortgage. It also reinforces our view that residential investment is once again contributing to growth.”
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