Investing.com – The Bank of Canada (BoC) decided to keep its benchmark interest rate on hold in July , while expecting inflation to hit target and growth in the Canadian economy to accelerate next year, it announced on Wednesday.
The BoC said it was leaving its overnight cash rate unchanged at 0.50%, in line with market expectations.
Canada’s central bank said that inflation was on track to return to 2% in 2017 as the “complex adjustment” underway in its economy proceeds.
“Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast,” the BoC explained.
Furthermore, the Canadian monetary authority projected growth to accelerate from 1.3% this year to 2.2% in 2017.
“The fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty,” the BoC said in the press release.
The central bank noted that economic activity expanded by 2.4% in the first quarter of 2016 but was estimated to have contracted by 1.0% in the second quarter.
“The quarterly variability is exacerbated by the economic effects of the devastating wildfires in Alberta, which are estimated to have subtracted about 1 percentage point from GDP growth in the second quarter,” the BoC explained.
The bank expects a rebound in the third quarter thanks to the fact that oil production is resuming and forecast average growth in the second and third quarters to settle at 1.25%.
The loonie strengthened following the release. USD/CAD was trading at 1.2987 from around 1.3069 ahead of the announcement, while EUR/CAD moved at 1.4398, compared to 1.4490 prior to the news.