Bank of Canada keeps overnight rate unchanged at 0.5%

The Canadian central bank has kept overnight rate unchanged at 0.5%. According to the BoC, outlook for inflation is broadly as forecast, while the global economic dynamics are largely as expected in the central bank's October Monetary Policy Report (MPR). Oil prices have declined to unexpected low levels, while stock markets are plummeting sharply. Moreover, the Canadian dollar has depreciated more than forecast and the output gap will continue to be wider for longer than mentioned in the October's MPR.

According to analyst at Dominion Lending Centres, the central bank has kept rates unchanged for several reasons. Firstly, the Canadian dollar has depreciated sharply and lowering of rate would have led to a currency rout. Secondly, a rate cut would have increased the risk of encouraging excessive borrowing amidst worries about household debt. Moreover, additional easing would not have much of a macroeconomic benefit with the rates already so low. Also, the feds will be boosting the economy with the help of infrastructure spending.