Bank of Canada leaves rate unchanged at 0.75% as growth is flat to start 2015

Article by CBC News, April 17, 2015

“The economic pain inflicted by plunging oil prices is hurting the country more than expected, but that pain should start to ease in the next few months, the Bank of Canada says in its latest forecast.

Unlike what the bank did in January with a surprise cut, the bank opted Wednesday not to change its overnight lending rate, leaving it at 0.75 per cent.

The Canadian dollar gained almost a full cent to 80.60 cents US on the news, as currency traders seemingly focused on the lure of stability as opposed to a rate cut which would have made the loonie less attractive as an investment.

Canada’s economic ills are acute right now. Poloz, famously predicted GDP growth in the first quarter of 2015 would be “atrocious.” Now the numbers are in and show the economy effectively stalled, with zero economic growth in the first three months of 2015. The bank had previously estimated growth of 1.5 per cent for the same period.

“The Canadian economy is estimated to have stalled in the first quarter of 2015,” is how the bank bluntly put it in its statement.

Worse still for Canada is that its largest trading partner, the U.S., is also showing some unexpected signs of slowing down.

“Our folks are calling it a wobble,” is how Poloz himself characterized the unexpected U.S. weakness while addressing a news conference following the release of the bank’s policy statement.

The central bank says the economic strife caused by oil prices is proving to be more “front-loaded” than predicted, but not larger. It anticipates non-energy exports will start to improve and investments will increase around mid-2015. By the end of 2016, the bank estimates the economy will have reached full capacity.”

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