Investing.com – As expected, the Bank of Canada (BoC) decided to keep its benchmark interest rate on hold in September while noting that the return to full capacity for the Canadian economy would occur "materially later" than expected in July, according to the monetary policy report released on Wednesday.
The BoC said it was leaving its overnight cash rate unchanged at 0.50%, in line with market expectations, as well as keeping the bank rate a 0.75% and the deposit rate at 0.25%.
The Canadian monetary authority has held the key interest rate unchanged since the surprise 25 basis point cut in July 2015.
The BoC noted that the global economy was expected to regain momentum in the the second half of this year and through 2017 and 2018.
For Canada, the Bank projected growth of 1.1% in 2016 with an increase to “about 2%” in both 2017 and 2018.
“The projection implies that the economy returns to full capacity around mid-2018, materially later than the Bank had anticipated in July,” the BoC noted in the press release.
The Canadian monetary authority explained that the later-than-expected full recovery was due in large part to slower near-term housing resale activity and a lower trajectory for exports.
The BoC explained that total consumer price inflation was tracking slightly below expectations because of temporary weakness in prices for gasoline, food and telecommunications.
In that light, it expects inflation to return to the 2% target from early 2017 onwards when those temporary factors are expected to dissipate, but warned that downward pressure on prices would continue while economic slack persists.
"Given the downward revision to the growth profile and the later closing of the output gap, the Bank considers the risks around its updated inflation outlook to be roughly balanced, albeit in a context of heightened uncertainty," the Canadian central bank stated in the press release.
Following the press release, the loonie strengthened against the dollar. USD/CAD was trading at 1.3058 from around 1.3104 ahead of the announcement.