Canada's central bank decided to keep its benchmark interest rate at one per cent today, the same level it has been at for almost four years.
The Bank of Canada announced in its latest policy decision on Wednesday that it will keep its target for the overnight rate — the yardstick against which most consumer loans are measured — steady at one per cent.
Although most economists were expecting no change in the rate, the choice of wording is often closely scrutinized to see if the central bank is leaning toward a rate hike or a cut, if and when it does decide to act.
Instead of suggesting rate hikes are in the offing, the bank softened its tone and suggested it's in no hurry to hike rates if and when it chooses to act.
'The economy is expected to reach full capacity around mid-2016.'- Bank of Canada statement
"The bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks," the bank said.
Bank of Canada governor Stephen Poloz will provide more details on the bank's interest rate decision at a press conference around midday on Wednesday. The bank has announced it is keeping its benchmark rate at one per cent. (Adrian Wyld/Canadian Press)
Indeed, the full document makes it clear the bank thinks we're in a brave new world where interest rates will be much lower than we're used to, for much longer.
"We are still a long way from home," Bank of Canada chief Stephen Poloz said. "Our economy has room
to grow. And, when we do get home, there is a growing consensus that interest rates will still be lower than we were accustomed to in the past."
The Canadian dollar initially dropped on the news, but by the time the bank's full 23-page accompanying report was fully digested by the market, the loonie was back where it was before — a little below 93 cents US.
Despite the care to remain neutral, there were a few indications that the bank's overall outlook has become a bit more pessimistic. The bank shaved a tenth of a percentage point off of its GDP growth projections for the near term — to 2.2 and 2.4 per cent, this year and next.
"Consequently, the economy is expected to reach full capacity around mid-2016, a little later than anticipated in April," the bank said.
In its accompanying Monetary Policy Report, which it published four times a year, the bank noted that job growth in Canada has slowed this year, with an average of just 6,000 new jobs created every month in 2014.
There are also 100,000 fewer people in the prime work age group of 25 to 54 who are employed or looking for work today than there were six months ago, the bank noted.
"Continuing labour market slack is also reflected in subdued increases in wages," the bank said.
Slowing job growth and stagnant wages aren't a recipe for economic growth, which explains why the bank's tone turned a little more pessimistic. Some private-sector economists agree with that view.
"We think it will take much longer than 2016," Capital Economics economist David Madani said. "Overall, the bank's latest policy statement supports our view that interest rates will have to remain low for longer than the consensus view."
Poloz is providing more details on the interest rate decision at a press conference now taking place.
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