Weighing on its decision to maintain its key lending rate at 1.75 percent for now, the Bank of Canada said, was a sudden plunge in oil prices since October 2018
Ottawa (AFP) - Canada’s central bank on Wednesday maintained its key lending rate at 1.75 percent, saying the economy appeared to be slowing in the fourth quarter amid global trade turmoil and lower oil prices.
The Bank of Canada signaled that rate hikes were likely in the near future to keep inflation in check, but would depend on how those increases affect consumption and housing, and on developments in international trade policy.
The bank said its decision to hold steady for now was influenced by a sudden plunge in oil prices since October, “reflecting a combination of geopolitical developments, uncertainty about global growth prospects and expansion of US shale oil production.”
Western Canadian Select oil produced in landlocked Alberta province has been pulled down further by a lack of new pipeline capacity to transport oil to US Gulf coast refineries or to the Pacific shores for shipping overseas.
Prices climbed this week after the province announced it would curtail production starting in January, but Canadian oil was still trading at a steep discount compared to the benchmark West Texas Intermediate ($28.25 versus $53.77 at 1530 GMT).
“In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected,” the central bank concluded.
Canada currently produces about 4.8 million barrels of oil equivalent per day, mostly heavy oil from the Alberta oil sands, which is the world’s third largest deposit.
Alberta Premier Rachel Notley announced late Sunday an 8.7 percent cut in oil production, or 325,000 barrels a day.
CIBC Capital Markets economist Avery Shenfeld said the bank’s stance suggested interest rates could peak at 2.25 percent next year.
“A January rate hike,” he said, “now depends on seeing much better economic data for October and an OPEC production cut that firms up oil prices.”
The central bank said outside the energy sector, business investment was expected to strengthen after the signing of a continental trade deal with the United States and Mexico, and new federal government tax measures.
Strong foreign demand for Canadian goods, meanwhile, “should support continued growth in exports,” it said.
And after a significant slowdown in recent quarters blamed in part on rising mortgage rates, the Canadian housing market appears to be stabilizing.
Inflation, at 2.4 percent, came in above the central bank’s target in October, but it said it is expected to ease by more than its previous forecast due to lower gasoline prices.