Canada central bank maintains key lending rate at 1.25%

Ottawa (AFP) –


Canada's central bank on Wednesday maintained its key lending rate at 1.25 percent, after the year started with weaker than expected economic growth.

The primary reasons for the slowdown were a cooling housing market due to new stricter mortgage rules and faltering exports caused by transportation bottlenecks, the bank said in a statement.

Its decision to stand pat on rates was expected following a small 25 basis points increase to the Bank of Canada's benchmark rate in January.

Going forward, the bank said: "Some of the weakness in housing and exports is expected to be unwound as 2018 progresses."

Exports will strengthen as foreign demand increases, but not sufficiently to recover ground lost in recent quarters, it predicted.

Capacity constraints in some sectors is increasingly limiting export growth.

New business investment should build capacity in those sectors, it said, but both exports and investment "are being held back by ongoing competitiveness challenges and uncertainty about trade policies."

Notably, Canada is in the midst of renegotiating the North American Free Trade Agreement with the United States and Mexico.

Bad weather over the winter also slowed train shipments of agricultural products to ports. In addition, a proposed new oil pipeline that would ramp up oil exports from Canada's Pacific coast has faced strong opposition.

Canadian domestic consumption remains robust, supported by strong labor income growth. Ontario and Alberta provinces recently increased minimum wages.

The bank said an expected second quarter rebound should result in 2.0 percent average growth for the first half of 2018, down from 3.0 percent growth last year.

The global economy, meanwhile, is on a "modestly stronger track" than forecast in January, but "escalating geopolitical and trade conflicts risk undermining the global expansion," the bank warned.

Inflation has also risen close to the bank's target of 2.0 percent.

The bank said it will "remain cautious" with respect to future rate changes.

"Higher interest rates will be warranted over time," it said, "although some monetary policy accommodation will still be needed to keep inflation on target."