The Bank of Canada chose to maintain its target for the overnight rate at ½%, citing further hit expected in the oil sector.
“The Canadian economy’s complex structural adjustment to the oil price shock is ongoing and will dampen growth throughout the Bank’s projection horizon,” the Bank said in its press release. “First-quarter GDP growth appears to have been unexpectedly strong, but some of that strength is due to temporary factors and is likely to reverse in the second quarter.”
However, the Central Bank is optimistic the economy will recover, which hints at a potential rate increase in the future.
“It does appear that the positive forces at work in the economy are starting to outweigh those that are negative. Non-resource exports are expected to strengthen, but their profile is weaker than previously projected, in part because of slower foreign demand growth and the higher Canadian dollar,” the Bank said. “The economy continues to create net new employment, especially in services, despite job losses in resource-intensive regions. In this context, household spending continues to expand moderately.”
Business investment – while still shrinking – is expected to rebound later in the year.
Despite a slight downgrade to the BoC’s economic outlook, it forecasts GDP growth of 1.7% in 2016, 2.3% in 2017, and 2% in 2018.
Still, Total CPI inflation is below the desired 2%.
“Overall, the risks to the profile for inflation are roughly balanced,” the BoC said. “Meanwhile, financial vulnerabilities continue to edge higher, in part due to regional shifts in activity associated with the structural adjustment underway in Canada’s economy.”
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The Central Bank announced its latest rate decision Wednesday.