On the plus side, the bank pointed to recovering oil production and the increase in the Canada Child Benefit, brought in by the federal government, which is expected to boost consumer spending.
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In its July monetary policy report, the Bank of Canada forecast economic growth to bounce back in the third quarter to an annual pace of 3.5 per cent before slowing to a 2.8 per cent pace for the last three months of the year.
Canada’s economy shrank by 0.4 percent in the second quarter from the first quarter as economic activity, including oil production, was hit by the Alberta fires and larger-than-expected drop in exports.
The Bank of Canada is set to make its latest interest rate announcement today.
In July the BOC lowered its forecast for Gross Domestic Product growth this year to 1.3 percent from its April forecast of 1.7 percent, and the 2017 forecast to 2.2 percent from 2.3 percent.
Overall, the Canadian economy grew by 0.6 percent in July, which looks to be a good start to the second half of the year.
Economists had expected the central bank to stay the course as the economy copes with a prolonged decline in the price of oil and the impact of wildfires that temporarily reduced output from Alberta’s oilsands in the spring.
The Bank’s next interest rate announcement takes place October 19.
In recent months, Canada’s monetary policymakers have overestimated economic growth and have trimmed projections several times even as they hold interest rates steady, reluctant to use up what little leeway remains to lower borrowing costs and stimulate spending.
“The US economy was weaker than expected in the second quarter, notably reflecting a contraction in business and residential investment”, it said.
The rate has dropped significantly in the last three days and has reached fresh new lows, the price is trying now to erase the yesterday’s losses, but as I’ve said, remains to see what will happen because is hard to believe that the United States dollars will rebound at this moment after the yesterday’s massive drop, this bounce back could be only temporary ahead of another bearish momentum.
“On balance, risks to the profile for inflation have tilted somewhat to the downside since July”, when the last rate decision was made, policy makers led by Governor Stephen Poloz said in a statement.
The bank didn’t update the monetary policy report on Wednesday but said inflation was “roughly” in line with its expectations, with total inflation below the two per cent target and measures of core inflation around two per cent.
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The central bank also noted that there are “preliminary signs of a possible moderation in the Vancouver housing market”.
