Canada's central bank on Wednesday maintained its key lending rate at one percent, saying it expects an uptick in the economy to moderate as the year comes to an end. Job creation, consumer spending and business investment have been strong in 2017, but there is "considerable uncertainty" in geopolitics and trade policies that could negatively impact growth, it said.
Canada, the United States and Mexico's renegotiation of the North American Free Trade Agreement appears to be headed toward a deadlock. Meanwhile, the expected launch of Canada-China formal free trade talks during Prime Minister Justin Trudeau's visit to China this week - in a bid to diversify Canada's export markets - has so far failed to materialize.
"While higher interest rates will likely be required over time," said Bank of Canada said, "(its) governing council will continue to be cautious, guided by incoming data in assessing the economy's sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation." The central bank noted stronger than expected third quarter results in the United States - Canada's largest trading partner by far - but forecast a pullback in the US economy "in the coming months."
Following "exceptionally strong growth" earlier in 2017, Canadian exports declined "by more than was expected" from July to September, the bank said. Exports are expected to bounce back as foreign demand strengthens, it added.
Home prices, meanwhile, have continued to moderate as the impact of government policies to try to curb skyrocketing real estate costs take effect. Inflation, however, has been slightly higher than anticipated and will continue to be buoyed by gasoline prices in the short term, the bank concluded. And despite rising employment, the bank expects continued slack in the labour market.
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