OTTAWA – The Bank of Canada is holding steady on interest rates as it gauges the extent of the damage that deepening trade conflicts have had on the domestic and global economies.
The rate decision, which was widely expected, keeps the central bank’s overnight rate at 1.75 per cent and follows a solid second-quarter rebound for the Canadian economy.
In the policy statement, however, the bank said some of the strength seen earlier this year will likely be temporary and predicted economic activity to slow in the second half of 2019.
It also underlines the weak spots — such as a sharp contraction in Canadian business investment that coincided with the increased trade uncertainty.
The bank says the intensification of the U.S.-China trade conflict has been a bigger drag on global economic momentum than it had predicted in early July, which was the last time governing council provided public commentary.
The statement says the current level of policy stimulus remains appropriate and, in the lead up to next month’s rate decision, that the bank will monitor to how global developments will affect the Canadian outlook.
Heading into the announcement, the bank was widely expected to leave its rate unchanged. Many analysts have projected the bank to cut its borrowing rate at the next policy meeting on Oct. 30, mostly due to expanding trade tensions and the deteriorating global economy.