The Bank of Canada is abruptly abandoning an explicit warning that its key interest rate is headed higher in the face of a much gloomier economic outlook.
Cautioning that Canada is likely to grow much more slowly than it thought in the summer, the central bank now acknowledges that its next move is just as likely to be a rate cut, as an increase.
Here are five things to know about the decision. Read the full story.
1. The bank has abruptly dropped its explicit warning that its key overnight interest rate will rise to a more normal level “over time.” The so-called tightening bias has been in place since April of 2012, when Mark Carney was still Bank of Canada governor.
2. The key overnight rate remains at the rock bottom level of one per cent – where it’s been since September, 2010. Many economists don’t expect a rate hike until late 2015 or 2016.
3. The bank lowered its forecast of GDP growth in Canada and the U.S. – for this year, as well as 2014 and 2015. In Canada, the economy is expected to grow 1.6 per cent in 2013, 2.3 per cent in 2014 and 2.6 per cent in 2015. That’s a downgrade from July, when the bank was forecasting growth of 1.8 per cent, 2.3 per cent and 2.6 per cent respectively.
4. The bank says that the “downside risks to inflation are assuming increasing importance” the longer that it remains below its target of two per cent. The consumer price index has been below that level since early 2012.
5. Exports and business investment remain weak. The bank had anticipated a hand-off from a consumer-led recovery by now. But that’s now been delayed, and the bank isn’t sure why, beyond “shifts in trade linkages” and “ongoing competitive challenges.Report Typo/Error