Bank of Canada keeps overnight rate at 0.5 percent

The Bank of Canada said Wednesday it is maintaining its target for the overnight rate at 0.5 percent, saying its economy has rebounded but growth remains weak due to low oil prices and other commodities.

The central bank also maintained its July estimate for 2015 economic growth but downgraded projections for the next two years, stressing the hits to business investment and resource exports from persistently low commodity prices.

"The Canadian economy is undergoing a complex set of adjustments," the bank said in a monetary police report.

"A prolonged period of deteriorating competitiveness, punctuated by the Great Recession, led to the destruction of many firms and depressed business investment outside the energy sector, resulting in significantly reduced capacity in the non-resource sector. It is in this context that the Canadian economy has to adjust to lower commodity prices," the bank in the report.

The bank maintained its July forecast that the economy -- as measured by real gross domestic product -- will grow by 1.1 percent in 2015.

It presented a revised growth projection for 2016 of 2 percent, down from 2.3 percent, and a 2017 forecast of 2.5 percent, down from 2.6 percent.

In explaining its decision to keep its overnight rate at 0.5 percent, the bank noted that inflation and economic activity was largely unfolding as predicted, even as low oil prices continue to weigh on the economy.

It said the country's economy is bouncing back from the technical recession that kicked off 2015. The rebound is supported by the long-awaited signs of strength in non-resource sectors, thanks to solid growth in the United States.

"Economic momentum is rebuilding," the report said. But it cautioned that expansion in non-resources industries would still fall short of offsetting the impact of the oil slump.

The bank also pointed to robust household spending as the key driver of Canada's economic activity. As a result, it warned the overall ratio of debt to disposable income crept higher.

The bank said it judged that the risks around the inflation profile are roughly balanced. Meanwhile, as financial vulnerabilities in the household sector continue to edge higher, risks to financial stability are evolving as expected.

Taking all of these developments into consideration, the bank judged that the current stance of monetary policy remains appropriate, according to the report. Enditem