Bank of Canada Holds Rates and Downgrades Forecast

The Canadian economy has stalled and won’t grow at all in the first quarter as the damage from the oil price collapse hits hard and early, the Bank of Canada says.

But the central bank opted Wednesday to keep its key overnight lending rate at 0.75 per cent, insisting that the rest of the year will be much better as lower interest rates filter through the economy and exports rebound.

“The impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger,” the bank said in a statement accompanying the rate announcement. “The ultimate size of this impact will need to be monitored closely.”

The bank said the harsh winter and “temporary weakness” in the U.S. also weighed on Canada’s economy in the first few months of the year.

After that, the “natural sequence” of higher exports, business investment and job growth will “re-emerge,” according to the bank, which stunned investors with a surprise quarter-percentage-point cut in January.

And yet the bank’s latest forecast is filled with fresh warnings – about oil prices, employment, the slowing housing market, sluggish business investment and falling prices for a number of key commodity exports, such as natural gas, lumber, hogs and iron ore.

Bank of Canada Governor Stephen Poloz said recently that the economy would be “atrocious” in the first three months – a view many economists derided as overly gloomy.

via Globe and Mail

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