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Bank of Canada: Interest rates to remain at 1 percent

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Bank of Canada: Interest rates to remain at 1 percent

Policymakers at the Bank of Canada opted to leave the benchmark lending rate unchanged at 1 percent, citing delayed export recovery as one of the main reasons to maintain accommodative monetary policy. Canadian trade data underwhelmed expectations Wednesday, with July exports valued at $39.22 billion, down from the previous month’s $39.45 billion. Canada’s international merchandise trade, which measures the difference in value between imports and exports, was -$0.93 billion, compared to the previous month’s reading of $-0.46 billion. According to BoC Governor Stephen Poloz, the current pace of monetary policy is appropriate given the current status of Canada’s export industry.

The central bank hasn’t raised interest rates since 2010, when the country buoyed itself against a growing tide of global volatility emanating from the 2008 financial crisis. The lending rate was left at 1 percent for the 24th consecutive month, in-line with the Bloomberg consensus. Canadian policymakers expect a pick-up in economic activity in 2014, which will likely lead to a “gradual normalization of policy interest rates,” according to Poloz.

Canada’s economy has gradually declined in 2013, led by negative job growth and weak business growth. As one of the world’s leading export nations, Canada has been hit hard by waning demand for natural resources. The Canadian economy’s gradual decline comes while recovery continues to gain momentum in Europe and the United States. It is feared the potential demise of quantitative easing in the United States will have a detrimental impact on the Canadian economy. Bank of Canada Deputy Governor John Murray has reassured market participants this isn’t the case, and that Canada has a great deal to benefit from a strengthening US economy.

On Friday market participants will have another opportunity to assess the status of the Canadian economy when the nation’s statistics department releases August employment data. The Canadian economy is expected to have added more than 30,000 jobs in August, after the job market contracted by 39,400 in July.

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