Investing.com - The Bank of Canada (BoC) decided to keep its benchmark interest rate on hold in May and increased its growth forecast for the Canadian economy this 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 the global economy was evolving largely as expected.
“In Canada, the economy’s structural adjustment to the oil price shock continues, but is proving to be uneven,” the bank said in the press release.
The BoC said that the second quarter will be much weaker than predicted because of the devastating Alberta wildfires.
Furthermore, the bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter.
However, the BoC was confident that the economy would rebound in the third quarter, as oil production resumes and reconstruction begins.
“While the Canadian dollar has been fluctuating in response to shifting expectations of US monetary policy and higher oil prices, it is now close to the level assumed in April,” the bank noted.
Regarding price stability, the BoC considered inflation to be roughly in line with its expectations.
“Meanwhile, the risks to the bank’s inflation projection remain roughly balanced,” it added.
Following the press release, the loonie strengthened. USD/CAD was trading at 1.3095 from around 1.3109 ahead of the announcement, while EUR/CAD moved at 1.4596, compared to 1.4616 prior to the news.