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Bank of Canada keeps key rate unchanged at 0.5 pct

Xinhua, July 14, 2016 Adjust font size:

Canada's central bank on Wednesday decided to hold its benchmark interest rate steady at 0.5 percent, but warned that high house prices in some cities and the consequence of Brexit are lurking risks to the Canadian economy.

The Bank of Canada's rate, known as the target rate for overnight loans, affects the rates that Canadians get offered from retail banks for their savings accounts and mortgages. Eight times a year, the central bank meets to decide where to set the rate, based on how the economy is performing.

In its latest decision on Wednesday, the central bank said "the fundamentals remain in place for a pickup in growth" in the economy some time down the line.

Despite deciding to keep interest rates near rock bottom, the bank warned again about "financial vulnerabilities" emerging in the red hot Toronto and Vancouver housing markets.

"Sharply rising prices in these markets over the past year raise the possibility that prices are also being driven by self-reinforcing expectations, making them more sensitive to an adverse shock," the bank said.

"Prices appear to be outpacing anything you could write down as fundamental," said Bank of Canada governor Stephen Poloz at a press conference following the release of the bank's quarterly Monetary Policy Report.

The bank also noted the recent Britain's vote to exit the European Union has the potential to hurt the Canadian economy, working out to a roughly 0.1 percent hit to its GDP this year.

The Canadian economy "grew by 2.4 percent in the first quarter but is estimated to have contracted by 1 percent in the second quarter, pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires," the bank said.

It's expected to bounce back up to 3.5 percent growth in the July to September period, but for the year as a whole, the bank now expects the Canadian economy to expand by just 1.3 percent. That's down from the 1.7 percent the bank was forecasting as recently as April.

The bank said it expects oil prices and the Canadian dollar to stay right around where they are for the rest of the year -- 49 U.S. dollars for a barrel of crude and 77 U.S. cents for the loonie. Endit