The Bank of Canada left its key interest rate unchanged Wednesday at 1%, after having increased in its last two decisions. The central bank has suggested that further increases are still possible, but that they will occur at a more gradual pace.
The bank said it chose the status quo in part because it expects the recent strong Canadian dollar to dampen inflation growth. In support of this view, the central bank also noted that there is still considerable uncertainty with respect to geopolitical developments and fiscal and trade policies, including the renegotiation of the North American Free Trade Agreement. (NAFTA).
Bank of Canada Governor Stephen Poloz has raised the bank’s policy rate twice since July, in response to the economy’s impressive performance over the last four quarters. These two decisions reversed the rate cuts introduced in 2015 to prevent the economic shock associated with the plunge in crude oil prices.
The bank said Wednesday that it expected to stay on the path of rate hikes, but perhaps at a more hesitant pace. “Although a lesser degree of monetary easing will probably be needed over time, the Board will be cautious in making future adjustments to the key rate , ” the bank said in a statement.
She indicated that she would pay close attention to new economic data to assess the sensitivity of the economy to interest rates, changing economic capacities, and wage and inflation growth. Its next decision on monetary policy is scheduled for December 6.
The central bank also unveiled Wednesday an update of its forecasts, and it puts on a slowdown in growth after the powerful performance posted during the first half of the year. Economic growth, measured with GDP, is expected to reach 3.1% this year, before slowing to 2.1% next year and 1.5% in 2019.
The economy grew at an annual rate of 3.7% in the first quarter of 2017 and 4.5% in the second quarter. The Bank of Canada’s most recent outlook now targets annual growth of 1.8% in the third quarter and 2.5% for the last three months of the year.