The Bank of Canada left interest rates unchanged on Tuesday, as expected, and gave no sign it might cut rates soon, despite a belief that a US slowdown will batter the domestic economy.
While nobody expected the central bank to alter rates, held steady at 4.25 percent since May, many economists thought the bank would place more emphasis on the impact a slowing US economy will have to Canada's exports and growth rates. Instead it said the risk of a slowdown was "roughly balanced" with the risk of inflation.
"Although the Bank did, indeed, lower its forecast for economic growth, there is not even a whiff of potential rate cuts in its statement," Marc Levesque, chief fixed-income and foreign exchange strategist at TD Securities, said in a note to clients.
As well as cutting growth forecasts, the bank reduced its estimate for how fast the economy can grow without triggering inflation. That means it may tolerate slower growth without feeling the need to cut interest rates in response.
The bank now expects the economy to expand by 2.8 percent this year, down from a previous estimate of 3.2 percent. That is right in line with the new assumption of the potential growth rate, downgraded to 2.8 percent from 3 percent due to lower-than-expected productivity growth. It pegged next year's growth at 2.5 percent, down from a previous forecast of 2.9 percent.
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