The Central Bank held its target for the overnight rate at ½% Wednesday, citing increasing “household vulnerabilities.”
“Canada’s housing market continues to display strong regional divergences, reinforced by the complex adjustment underway in the economy. In this context, household vulnerabilities have moved higher,” the Bank said in its announcement. “Meanwhile, the risks to the Bank’s inflation projection remain roughly balanced.
“Therefore, the Bank’s Governing Council judges that the current stance of monetary policy is still appropriate, and the target for the overnight rate remains at 1/2 per cent.”
The Central Bank argues oil price shock is still being felt, but that economic growth in Q1 has aligned with its expectations.
However, the economy will take a hit in Q2 due to the wildfires in Fort McMurray.
“The second quarter will be much weaker than predicted because of the devastating Alberta wildfires,” The Bank said. “The Bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter.”
The economy is expected to rebound in the third quarter due to oil production resuming.
“Inflation is roughly in line with the Bank’s expectations. Total CPI inflation has risen recently, largely due to movements in gasoline prices, but remains slightly below the 2 per cent target,” The Bank said. “Measures of core inflation remain close to 2 per cent, reflecting the offsetting influences of past exchange rate depreciation and excess capacity.”