BoC holds rate at 0.5 per cent, raises concerns about economic performance

OTTAWA—The Bank of Canada held its key interest rate target steady at 0.5 per cent on Sept. 7 but raised concerns after the export sector disappointed earlier this year.

“While the strength in exports during July was encouraging, the ground lost over previous months raises the possibility that the profile for economic activity will be somewhat lower than anticipated,” the central bank said in its rate announcement.

The Canadian economy contracted at an annual pace of 1.6 per cent in the second quarter, faster than the 1.0 per cent pace that had been forecast by the Bank of Canada in its July monetary policy report.

The pullback came due to the Alberta wildfires in May and a drop in exports that was larger and more broad-based than expected, the bank said.

However, the economy grew in June and the latest trade figures from Statistics Canada showed gains by exports in July.

“While Canada’s economy shrank in the second quarter, the bank still projects a substantial rebound in the second half of the year,” the Bank of Canada said.

The third quarter is expected to show growth as production from the oilsands resumes after temporary shutdowns because of the wildfires and work begins on rebuilding damaged portions of Fort McMurray, Alta., and surrounding areas.

The federal government’s new Canada child benefit program is also forecast to help consumer spending, while infrastructure spending by Ottawa is expected to lend a boost in the second half of the year.

In its July monetary policy report, the Bank of Canada forecast economic growth to bounce back in the third quarter to an annual pace of 3.5 per cent before slowing to a 2.8 per cent pace for the last three months of the year.

The bank didn’t update the monetary policy report on Wednesday but said inflation was “roughly” in line with its expectations, with total inflation below the two per cent target and measures of core inflation around two per cent.