Housing Market Downturn, Exports Force Bank of Canada To Holds Key Interest Rate At 0.5%

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OTTAWA – The Bank of Canada is holding its benchmark interest rate at 0.5 per cent, it said Wednesday.

The Bank of Canada kept its benchmark interest rate unchanged at 0.5 per cent on Wednesday and reduced its growth outlook for the economy, citing cited slower short-term activity in the resale housing market coupled with soft Canadian exports as reasons for the lowered outlook, reported CBC News.

The central bank trimmed its outlook for growth this year to 1.1 per cent, from the 1.3 per cent it had forecast in July.

Speaking to reporters in Ottawa, Bank of Canada governor Stephen Poloz called the recent federally mandated mortgate measures brought in to stabilize the Canadian housing market “a welcome development, as it will mitigate financial vulnerabilities over time.”

“We expect it to reduce housing resales in the near term, and perhaps cause a shift toward the construction of smaller homes, which together will shave some spending in the economy,” Poloz said.

The central bank said it sees the new mortgage rules knocking 0.3 per cent from economic growth by the end of 2018.

Meanwhile, Canada’s exports of goods posted gains in July and August, after a sharp contraction over the previous five months, but that was not enough to make up for previously lost ground, the bank said.

Weak U.S. business spending and lower expectations for the housing market in the United States, Canada’s top trading partner, have led to a reduction in the bank’s outlook for growth in our exports over the next two years.

The downward cut to exports, including spillovers to demand here in Canada and to our imports, would lower real GDP by 0.6 per cent by the end of 2018.