Central bank’s rate has impact on rates offered by commercial banks for loans and savings accounts
The Bank of Canada, lead by governor Stephen Poloz, kept its benchmark lending rate at 0.5 per cent on Wednesday. (Adrian Wyld/Canadian Press)
The Bank of Canada’s rate, known as its target for the overnight rate, affects what Canadian borrowers and savers are offered from commercial banks on their loans and investments.
Broadly speaking, the bank cuts rates when it wants to stimulate the economy, and hikes rates when it wants to pump the brakes on inflation.
After standing on the sidelines for years, the bank unexpectedly cut its benchmark rate twice last year in an attempt to stimulate a Canadian economy waylaid by low oil prices.
Since then, the economy has showed signed of improvement, however, as the cheap loonie has helped manufacturers and exporters, and oil prices have stabilized around the $40 level in recent months.
In January, Canada’s gross domestic product grew by its biggest amount in more than two years, official data showed last month. That helps explain the new cautiously optimistic outlook from the central bank’s decision-makers.
“It does appear that the positive forces at work in the economy are starting to outweigh those that are negative,” the bank said in its statement Wednesday. “First-quarter GDP growth appears to have been unexpectedly strong.”
The Canadian dollar reacted positively to the news, erasing earlier losses of about a third of a cent to trade hands virtually unchanged on the day, at 78.35 cents US.
While keeping rates steady for now, the bank hiked its forecast of how it expects the economy to perform this year.
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