The Bank of Canada announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
The current rate is expected to stay where it is well into 2017, depending on economic conditions in the United States, the direction of global oil prices and the impact of new federal stimulus spending.
The global economy is evolving largely as the Bank projected in its April Monetary Policy Report (MPR). In the United States, despite weakness in the first quarter, a number of indicators, including employment, point to a return to solid growth in 2016.
In Canada, the economy’s structural adjustment to the oil price shock continues, but is proving to be uneven. Growth in the second quarter of 2016 will be much weaker than predicted because of the devastating Alberta wildfires.
The Bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter. The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins.
Inflation is roughly in line with the Bank’s expectations. Total CPI inflation has risen recently, largely due to movements in gasoline prices, but remains slightly below the 2 per cent target.
Canada’s housing market continues to display strong regional divergences, reinforced by the complex adjustment underway in the economy. In this context, household vulnerabilities have moved higher.
For those of you with variable rate mortgages, this means the payments will remain unchanged.
