Bank of Canada stands pat, keeps interest rate at 0.75%

The Bank of Canada is keeping its benchmark lending rate at 0.75 per cent — in line with the expectations of the vast majority of economists.

The Bank of Canada is keeping its benchmark lending rate at 0.75 per cent — in line with the expectations of the vast majority of economists.

"The outlook for the Canadian economy also remains largely in line with the April Monetary Policy Report," the central bank, headed up by governor Stephen Poloz, said in a statement Wednesday explaining its rate decision. 

The bank says it is concerned by a U.S. economy that is showing signs of sluggishness, but remains confident that Canada's economy will rebound some time this quarter, which would remove the need for further stimulus moves such as cutting rates.

Last week, Bank of Canada governor Stephen Poloz called the weaker-than-expected U.S. economy "slightly puzzling," but he expressed optimism it would start accelerating in the second half of 2015, which would be good news for Canada by association as more than 90 per cent of Canadian exports go to the U.S.

The central bank said it's keeping rates where they are for the moment because inflation has been in line with projections and consumption has held up relatively well — even amid the net negative effects of lower oil prices.

The bank, however, plans to keep an eye on the potential economic implications for Canada if the loonie stays higher than it has been in recent months.

Oil's impact continues

​Only three of 23 economists polled by Bloomberg were expecting a slight cut to 0.5 per cent. The rest were expecting what happened — no change in the benchmark rate.

One of them, Capital Economics' David Madani, said he remains convinced the central bank will cut again at some point, and maybe more than once.

"While it doesn't [look] like the bank will cut rates anytime soon, we still think that the bank will eventually need to cut rates to support a flagging economy and prevent a more serious decline in underlying inflation," he said in a note to clients on Wednesday, adding that he thinks a cut could come as early as October, followed by another one in December to 0.25 per cent by the end of the year.

Part of the central bank's optimism for the economy is pinned to a recovery in oil prices. But Madani thinks any temporary uptick in the price of a barrel of oil — which gained 13 cents to $57.64 US a barrel on Wednesday — will be shortlived anyway.

"There's no guarantee that oil prices won't drop back again, especially as OPEC shows no signs of wanting to curb production," he said.

The bank meets to set its benchmark interest rate every six weeks. The next policy decision is scheduled to be released on July 15.

With files from The Canadian Press