Bank of Canada holds interest rate steady

The Bank of Canada will maintain its benchmark interest rate, citing a possible slowdown of the economy.

The economy strengthened during the last half of 2016, however a slowdown is now predicted. "Following a very weak first half of 2016, growth in the third quarter rebounded strongly, but more moderate growth is anticipated in the fourth quarter," said the bank, which is led by governor Stephen Poloz.

The bank’s rate (i.e. the target for the overnight rate) is currently at 0.5 percent.

Donald Trump’s election triumph isn’t mentioned in the statement, however the president-elect appears to be a big influence to the bank’s decision making.

"Following the election in the United States, there has been a rapid backup in global bond yields, partly reflecting market anticipation of fiscal expansion in a U.S. economy that is near full capacity," the bank said. "Canadian yields have risen significantly in this context."

This means that bond yields have increased since Trump was elected. The banks see some merit in keeping rates stable until some of that uncertainty settles down.

"No doubt, the back-up in bond yields is unwelcome by the Bank," Bank of Montreal economist Doug Porter said of the decision, "but we judge that overall financial conditions in Canada are broadly unchanged since the October meeting."

"Barring some massive shock, the Bank appears to be very comfortable staying on the sidelines for some time yet."
 

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