OTTAWA: Canada’s central bank maintained its key lending rate at 0.75 percent as a recovery in the United States Canada’s neighbor and largest trading partner — remained sluggish.
Lower oil and gas prices also continued to keep inflation low, while domestic consumption has held strong, the Bank of Canada said.
“Although a number of complex adjustments (in the economy) are under way, the bank’s assessment of risks to the inflation profile has not materially changed,” the bank said in a statement.
Financial stability risks “remain elevated,” it said.
But historically-low borrowing rates for Canadian households and firms are helping to stimulate the economy.
The Canadian dollar has also strengthened in recent weeks against a fallen US dollar as oil prices started to rebound.
The bank noted a weaker than expected US first quarter, which it said “has raised questions about the economy’s underlying strength.”
However, it predicted “a return to solid growth in the second quarter” in the United States, which would give a much-needed boost to Canadian exports.
In Canada, central bank Governor Stephen Poloz recently warned that last year’s drop in the price of Brent crude oil from above $100 to below $50 hit its oil patch, resulting in massive job losses, with more to come.
This led to weaker growth in housing and consumer spending, and manufacturing of equipment for the oil sector.
Wildfires in Alberta this week forced a further pullback in oil production with two facilities that account for 10 percent of the oil sands’ output being temporarily shuttered, as blazes threatened to cut off access roads.
CIBC economist Nick Exarhos noted that oil production represents two percent of Canada’s gross domestic product.
“Outages could shave a tick or so from May’s GDP outlook, and perhaps more from June’s if the fires persist,” he said in a research note.
When the latest figures are released on Friday, first quarter Canadian output is expected to have been “basically flat,” Poloz said.