Economic growth expected to moderate over remainder of 2017 and over next two years

The Bank of Canada today left its benchmark rate unchanged, at 0.5 per cent, saying it is too early to conclude that the economy is on a "sustainable growth path" despite a recent rebound that led it to bump up its 2017 outlook.

 

"During the rest of this year and into 2018 and 2019, growth in Canada is expected to moderate but remain above potential," the bank said Wednesday.

 

Economists had widely predicted that the bank would not shift the rate.

Timing of possible hike

The timing for potential future interest rate hikes also came into play as the central bank said it now expects the economy to hit full capacity in the first half of next year, a bit earlier than it had forecast in January. 

 

BMO Capital Markets senior economist  Benjamin Reitzes said Canada's central bank remains a long ways from following the U.S. Federal Reserve in boosting rates, but added that an April 2018 hike in Canada looks appropriate.

"If the positive data persist through to July, expect a more positive tonal shift from the [Bank of Canada] then," Reitzes said in a commentary.

 

"Despite a generally improved forecast, Poloz remains focused on the soft spots in Canadian labour markets and exports, and is not yet ready to declare Canada 'out of the woods' when it comes to unevenness in economic growth," TD senior economist  Brian DePratto said in a commentary.

 

However, DePratto added that the "shifting balance of risks around inflation, particularly as we move into 2018 suggest the potential for a 'pulling forward' of the first rate hike."