Economic outlook little changed from January

The Bank of Canada announced on March 1^st, 2017 it was keeping its trend-setting target overnight lending rate at 0.5 percent.

It said recent data confirm that the Canadian economy is on track for better growth, as predicted in its January Monetary Policy Report (MPR).

The Canadian economy is forecast to grow by 2.1% in 2017 and 2018, helped along in 2017 by Government spending. The Bank also anticipates, as it has for some time, that exports and business investment will gain better traction in 2018.

However, that outlook would be severely downgraded should U.S. trade policy become more restrictive under the Trump administration. It is one of a number of factors the Bank refers to as “significant uncertainties” as regards Canada’s economic outlook.

Additionally, while inflation began 2017 above the Bank’s 2% target, it was pushed higher in part by carbon pricing that came into effect on New Year’s day in Alberta and Ontario. Looking past temporary factors, other gauges for inflation continue to suggest there is still considerable slack in the Canadian economy.

While employment has risen, modest growth for wages and hours worked also point to persistent Canadian economic slack.

Taken together, the balance of economic factors strongly suggests the Bank is in no hurry to raise its trend-setting overnight lending rate. Nonetheless, higher bond yields in Canada and recent regulatory increases in capital requirements for lenders mean Canadian homebuyers may see mortgage rates rise modestly this year.

As of March 1^st, 2017, the advertised five-year lending rate stood at 4.64 per cent, unchanged from both the previous Bank rate announcement on January 18^th and from one year ago.

The next interest rate announcement and MPR, which will update the Bank economic forecast, will be on April 12^th, 2017.