Bank of Canada keeps overnight rate target at 0.5 percent

The Bank of Canada announced Wednesday that it is maintaining its target for the overnight rate at 0.5 percent and its deposit rate at 0.25 percent.

The bank said Canada's quarterly pattern of growth has been uneven. The real GDP grew by 2.4 percent in the first quarter this year, but the growth is estimated to have contracted by one percent in the second quarter due to volatile trade flows, uneven consumer spending, and the Alberta wildfires.

However, a pick-up to 3.5 percent is expected in the third quarter of this year as oil production resumes and rebuilding begins in Alberta.

The bank has revised down its economic forecast in light of a weaker outlook for business investment and a lower profile for exports. Real GDP is expected to grow by 1.3 percent in 2016.

Despite recent volatility, the bank expects the underlying trend of export growth to continue, leading to a pick-up in business investment. Higher global oil prices are expected to stabilize Canada's energy sector and household spending is expected to increase moderately.

While inflation has recently been a little higher than anticipated, largely due to higher consumer energy prices, it is still in the lower half of the bank's inflation-control range. Most measures of core inflation remain close to two percent but would be lower without the impact of past exchange rate depreciation.

Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast.

Meanwhile, financial vulnerabilities are elevated and rising, particularly in the greater Vancouver and Toronto areas.

The bank judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 0.5 percent. Endit