Bank of Canada holds interest rate steady amidst trade uncertainties

Citing ongoing trade disputes and data indicating Canada could experience “potential growth” in the second quarter, Bank of Canada maintained its overnight rate at 1.75 percent.

“Trade conflicts between the United States and China, in particular, are curbing manufacturing activity and business investment and pushing down commodity prices,” says the central bank.

“Recent data show the Canadian economy is returning to potential growth. However, the outlook is clouded by persistent trade tensions. Taken together, the degree of accommodation being provided by the current policy interest rate remains appropriate.”

In June, Statistics Canada reported that Canada’s natural resource sector was keeping the economy in positive growth territory, which showed Gross Domestic Product increased by 0.3 percent in April.

While a slight decline from March’s half-percentage-point uptick and better than 2019’s dismal first-quarter GDP growth of 0.1 percent, the StatCan report noted dramatic increases in resource activity, particularly in oil and gas.

Today the Bank of Canada acknowledged that fair summertime weather and an active energy sector could bode well.

“Growth in the second quarter appears to be stronger than predicted due to some temporary factors, including…a surge in oil production,”  it notes.

Bank of Canada “projects real GDP growth to average 1.3 percent in 2019 and about 2 percent in 2020 and 2021.”

Eight times a year Canada’s central bank sets a target for the overnight rate, the interest major financial institutions set to borrow and lend short-term funds among themselves.

These changes can influence other interest rates, such as consumer loans and mortgages as well as affect the exchange rate of the Canadian dollar.

Today the exchange rate is hovering around $1.24 Canadian-$1USD.