OTTAWA — The Bank of Canada is leaving its trend-setting interest rate unchanged because, despite a recent run of stronger-than-expected data, it believes the economy has yet to show it can stick to the higher growth trajectory.
In holding the rate at 0.5 per cent, the central bank says it also considered significant uncertainties still weighing on its outlook — including the unknown yet potentially adverse impacts of the U.S. economic agenda.
The bank says Canadian growth exceeded its expectations and it now predicts the economy will expand at an annual rate of 2.6 per cent in 2017 — up from its January forecast of 2.1 per cent.
It says the improvement was largely fuelled by unexpectedly robust residential investment as well as temporary factors such as the resumption of expenditures in the energy sector and the consumer-spending lift from bigger child-benefit cheques.
However, the bank also says export growth has been uneven and there have been continued signs of weakness in business investment and employment indicators of hours worked and wages.
The bank now predicts economic growth will slow to 1.9 per cent in 2018, down from its January forecast of 2.1 per cent, and 1.8 per cent in 2019.