Bank of Canada keeps benchmark interest rate steady at 1%
Hikes in July, September are still working their way through the economy
The Bank of Canada has decided to keep its benchmark lending rate steady at one per cent, pausing after two small hikes earlier this year.
Canada's central bank said Wednesday it has decided to keep its target for the overnight rate right where it is, while rate hikes in July and in September continue to work their way through the economy.
"While higher interest rates will likely be required over time," the bank said, "the current stance of monetary policy remains appropriate."
The bank noted that economic data has been coming in within range of what it was forecasting as recently as October, when the bank was expecting moderate growth for the rest of this year after a strong start to 2017.
Exports are a bit lower than expected, but the job market is a bit better than expected, the bank said.
The central bank's rate is what banks charge each other for small overnight loans. It filters into the overall economy by influencing the rate that consumers get for their variable rate savings accounts and loans such as mortgages.
Eight times a year, the bank's board of governors meets to decide where to set the bank's rate.
The next rate decision is scheduled for Jan. 17.
Loonie pulls back a little
The vast majority of economists polled by Bloomberg expected the bank to keep its rate steady.
Ahead of the announcement of the decision, overnight swap contracts suggested that investors only thought there was about a 16 per cent chance of a rate hike. For January, the market is currently pricing in about a 33 per cent chance of a hike. Bank of Montreal economist Doug Porter says that's because the bank in its statement said it would continue to be "cautious" about setting monetary policy.
"Keeping that word suggests there is presumably little chance of a move at the next meeting in January," Porter said.
The loonie moved lower on the news, half a cent to 78.29 cents US, then close down nearly half a cent at 78.20 cents US.
"The Bank of Canada reaffirmed its cautious stance on interest rate hikes Wednesday," Cambridge Payment Solutions strategist Don Curren said after the statement came out. "Its policy statement was a little more dovish than some in the market anticipated, prompting the loonie to lose some altitude, but stay within recent ranges."