Investing.com - The Bank of Canada kept its benchmark interest rate on hold in January, saying that risks to the inflation profile are balanced, it announced on Wednesday.
The BoC said it was leaving its overnight cash rate unchanged at 0.50%, broadly in line with market expectations. Some market analysts expected the BoC to cut rates by 25 basis points to 0.25% in response to fresh falls in oil prices.
Inflation in Canada is evolving broadly as expected. Total CPI remains near the bottom of the Bank’s target range as the disinflationary effects of economic slack and low consumer energy prices are only partially offset by the inflationary impact of the lower Canadian dollar on the prices of imported goods.
Prices for oil and other commodities have declined further and this represents a setback for the Canadian economy. GDP growth likely stalled in the fourth quarter of 2015, pulled down by temporary softness in the U.S. economy, weaker business investment and several other temporary factors.
The Bank now expects the economy’s return to above-potential growth to be delayed until the second quarter of 2016. The protracted process of reorientation towards non-resource activity is underway, helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions.
The BoC judges that the risks to the profile for inflation are roughly balanced. Meanwhile, financial vulnerabilities continue to edge higher, as expected.
Taking all of these developments into consideration, the Bank judges that the current stance of monetary policy remains appropriate.
BoC Governor Stephen Poloz was to comment on the decision at a press conference later in the day.
USD/CAD was trading at 1.4506 from around 1.4630 ahead of the announcement.