(CNN) — The Bank of Canada has left its key interest rate target on hold at 0.25%, saying it “reiterates its expectation that annual inflation will gradually move back toward the Bank’s 2% target this year.”
The central bank (C) said the decision was not a statement of policy uncertainty about the country’s economic outlook because most other countries in the Organization for Economic Cooperation and Development (OECD) were also holding rates at 0.25%.
Many economists were not surprised to see it kept rates unchanged. Canada has been the slowest among OECD nations to pull out of recession, but has seen its economic recovery become much stronger in the past year.
The bank noted that growth of 0.7% in the second quarter of this year means that “Canada has been growing faster than its G7 peers for three quarters in a row.”
The Canadian dollar dropped against the US dollar in response to the bank’s announcement.
Carney: No NAFTA concern yet
Bank Governor Stephen Poloz said that there was “some sign” of slippage in recent price increases in the British Columbia province.
“Let me be very clear — this is not a sign that the Canadian economy is weakening,” he said.
“We’re looking to inflation to come back toward 2% on a sustained basis. That’s all we’re talking about here,” he added.
But he noted that Canada could be affected in other ways if NAFTA was lost, and said there was “some concern” about jobs if there were any setbacks.
Trade tensions between the US and Canada could flare again if the three country’s respective prime ministers make good on threats to suspend talks over the North American Free Trade Agreement.
Poloz said trade tensions have less impact on Canada than on other countries.
“We have nothing like the trade wars that we see going on in other parts of the world,” he said.
Canadian officials had hiked interest rates four times in four months, including last month when Carney surprised markets by raising it again.
But Poloz noted that while inflation had been stable, it would probably not go any higher any time soon.
The central bank was tasked with maintaining a strong dollar and ensuring Canadian exports didn’t fall off a cliff.
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