NewsAlert:Bank of Canada keeps key rate unchanged at 1.75%

Jacqueline Hansen Senior Business Reporter

"We no longer expect the Bank of Canada to hike its policy interest rate in January". This indicates they believe there could be more excess capacity in the economy than policy makers had been estimating and implies less of a need for rate increases.

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ per cent.

Despite the hold, the central bank plans to continue the gradual tightening initiated in 2017.

Poloz has already raised interest rates five times since mid-2017 as he tries to return borrowing costs to more normal levels - possibly as high as 3 percent, according to recent statements.

But the timing of upcoming rate increases, the bank said, will now depend on several new factors that have emerged in recent weeks.

"The current level of interest rates remains appropriate for the time being", Poloz said Thursday in a speech at an event hosted by CFA Society Toronto.

Lower growth prospects are expected to reinforce Bank of Canada Governor Stephen Poloz's strategy of moving very gradually on increases to its overnight rate.

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In announcing its decision, Canada's central bank said that it still needs time to fully assess the impact of its previous interest rate increases, as well as the effects of lower oil prices on the domestic economy before making any further adjustments to interest rates. Bloomberg News forecasts that there is a 50% chance of a rate hike in January 2019.

On oil, the central bank blamed the steep slide in prices on the combination of geopolitical developments, uncertainty about the outlook for global growth and the expansion of American shale oil production.

Recent data, the bank noted, also show the economy has less momentum heading into the final quarter of 2018. But the dramatic slump in oil prices, and efforts by the Alberta government to remedy the situation with production cuts, have muddied the picture for the economy. The bank says it's related to factors such as a drop in business investment, which it largely connects to the significant uncertainty around trade last summer.

Poloz pointed to an unexpected decline in business investment over the summer as a key development - but he said the dive in oil prices has been the most-important "new shock".

The bank also notes it will be watching for positive developments such as signs the economy can still expand without stoking inflation.

Meanwhile, the data, on the inflation front, appears to be meeting expectations, as core measures continue to track two percent, and headline inflation is likely to ease due to lower gasoline prices.

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