Strong third-quarter growth at home and positive signs in the global economy are keeping the Bank of Canada on the sidelines , less than two months after Governor Stephen Poloz mused about a rate cut.
In its final rate announcement of 2016, the Bank of Canada said Wednesday that it is keeping its key overnight rate at 0.5 per cent.
The Canadian economy is expected to shift to moderate growth in the fourth quarter, according to the bank.
In October, Mr. Poloz said the bank had "actively discussed" the possibility of a further rate cut in order to speed up the Canadian economy's return to full capacity.
The bank highlighted the fact that significant amounts of slack remain in the Canadian economy because of disappointing business investment and export growth at a time when the United States is poised to inject fiscal stimulus into an American economy operating at full capacity.
The bank's statement was widely interpreted as dovish by economists, with some predicting the bank could remain on hold for months. Others said a possibility of a rate cut in 2017 remains.
Citibank economist Dana Peterson said the tenor of the brief statement suggests the bank likely considered a rate cut yet again.
She labelled the decision to hold as a missed opportunity to buy insurance for the Canadian economy.
"We continue to believe that unless there is strong evidence that Canada is regaining momentum and can weather likely increasing headwinds from U.S. policy changes, the [Bank of Canada] will need to lower interest rates again," Ms. Peterson said in a research note.
There is broad agreement, however, that the Bank of Canada will not be moving in lockstep with the Federal Reserve, which is expected to raise interest rates next week.
"A hike is still a distant proposition," said Canadian Imperial Bank of Commerce economist Nick Exarhos in a research note Wednesday.
Bank of Montreal chief economist Doug Porter agreed.
"We would interpret the series of relatively downbeat statements as a stark reminder that Canadian short-term rates in no way, shape or form, will follow the U.S. lead higher," he said in a note. "Barring some massive shock, the bank appears to be very comfortable staying on the sidelines for some time yet."
Donald Trump's election win in the United States has created expectations in financial markets that Republicans in Washington will approve tax cuts and new infrastructure spending. The bank observed that this has already pushed bond yields higher in both countries. This runs counter to the Bank of Canada's efforts to boost growth.
The strong third-quarter growth followed a very weak first half of 2016 that was largely a result of the temporary shutdown of Alberta's oil patch caused by wildfires in and around Fort McMurray.
The decision to keep the overnight rate at 0.5 per cent, where it has sat for the past 16 months, was widely expected by financial markets.
Mr. Poloz has been supportive of the idea that fiscal measures have a role to play in boosting economic growth during a period of persistently low interest rates.
Prime Minister Justin Trudeau's Liberal Party won power in 2015 on a platform of long-term fiscal stimulus, promising a package of tax cuts, increased payments to families and billions in new infrastructure spending.
Wednesday's statement from the bank indicates that the new Canada Child Benefit payments for families did contribute to the boost in growth during the third quarter.
However, there is no evidence yet that promised infrastructure spending has entered the economy.
The bank said Wednesday that "the effects of federal infrastructure spending are not yet evident in the GDP data."
"Meanwhile, business investment and non-energy goods exports continue to disappoint," the bank said.
"There have been ongoing gains in employment, but a significant amount of economic slack remains in Canada, in contrast to the United States. While household imbalances continue to rise, these will be mitigated over time by announced changes to housing finance rules."
Inflation has picked up in recent months but is slightly below expectations, the bank said, pointing to lower food prices as a main factor. Core inflation stands at close to 2 per cent.
A survey of economic forecasts compiled in November by FocusEconomics found the consensus expectation is that gross domestic product growth will be 1.2 per cent in 2016 and 1.9 per cent in 2017.