Bank of Canada leaves key interest rate unchanged - Action News
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Bank of Canada leaves key interest rate unchanged

The Bank of Canada left its key overnight lending rate at 0.50 per cent on Wednesday, saying the domestic economy was adjusting largely as expected to the effects of low oil prices and other pressures. But in the U.S., the central bank appears ready to move rates higher.

U.S. Federal Reserve appears ready to hike rates, but Canada's central bank unlikely to follow

As expected, the Bank of Canada has left its key overnight lending rate unchanged at 0.50 per cent. (Canadian Press)

The Bank of Canada left its key overnight lending rate at 0.50 per cent on Wednesday, saying the domestic economy was adjustinglargely asexpected to the effects of low oil prices and other pressures.

Most economists had expected the central bank to stand pat on its trend-setting rate.

In a statement, the Bank of Canada said exports in non-resource areaswerebeing helped by the ongoing U.S. recovery,a lower Canadian dollar, and the central bank's two interest rate cuts earlier this year.

But itnoted that the resource sector was still struggling with low prices andmajor job losses.

Total inflationas measured by the consumer price indexremains near the bottom of its one- to three-per-cent target range, thanks to low energy prices, the bank said.

But itnoted that business investment continues to beweighed down by spending cuts atresource companies. The bank also said U.S. consumerspending "has proven slightly less robust" than it expected.

In this country, the bank remains concerned about consumer debt levels. "Vulnerabilities in the household sector continue to edge higher," the bank said.

The interest rate announcement came one dayafter news that Canada's real gross domestic product grew at an annualized rate of 2.3 per cent in the three-month period ended in September, following two quarters of contraction.

But that turnaround may be short-lived. The dataalso showed thatthe economy shrank in September by 0.5 per cent from the previous month, providing a weak hand-offto the fourth quarter.

Unlikely to follow U.S.

Later this month, the U.S. Federal Reserve could begin raising its key overnight lending rate for the first timein almost a decade.

But economists said a line in the Bank of Canada statement that "policy divergence [between the U.S. and Canada]is expected to remaina prominent theme" is a clear signal that the bankwould not be following suitsoon.

"This is likely a message to those who think that the Bank [of Canada] could be pressured to tighten as the Fed pushes rate higher," said BMO Capital Markets economist BenjaminReitzes in a commentary.

"Governor [Stephen]Poloz is making it clear that even as the Fed hikes, Canadian rates will stay steady."

TD economist Leslie Preston said she expects the Bank of Canada "to keep rates at their current low level until the middle of 2017."

The Bank of Canada's next pronouncement on interest rates comes on Jan.20.