Key interest rate holds at 0.75 per cent

Wednesday, March 4, 2015

The Bank of Canada reports an easing of national financial conditions since a surprise downward adjustment in the key interest rate six weeks ago, and plans to hold it steady at 0.75 per cent at least into the second quarter. In a statement released Wednesday morning, Canada’s central bank observes that many of its international contemporaries have similarly taken action to ease monetary conditions and address threats of economic slowdown.

“Financial conditions in Canada have eased materially since January, in response to the Bank’s recent monetary policy action and to global financial developments,” the statement maintains. “This easing is reflected across the yield curve and in a wide range of asset prices, including the Canadian dollar. These conditions will mitigate the negative effects of the oil price shock, further boosting growth through stronger non-energy exports and investment.”

Worldwide, the United States is identified as “the main source of momentum in the global economy”. Meanwhile, with crude oil currently trading in the range of U.S. $50 per barrel, the Bank of Canada contends this is close to the assumptions – premised on prices of U.S. $60 per barrel – in its January Monetary Policy Report.

The Bank’s Wednesday statement includes a somewhat revised forecast for an economic hit this winter and spring that “may be even more front-loaded than projected in January”. However, the earlier reduction in the key interest rate is deemed to have mitigated the risk of deflation.

The next Monetary Policy Report will be released in six weeks, on April 15.