Full statement from the Bank of Canada December 2018 decision

Governor of the Bank of Canada Stephen Poloz

The Bank of Canada announced Wednesday that it kept its benchmark interest rate steady at 1.75 percent as it digested the impact of its previous policy decisions and effect of drastically lower oil prices on the Canadian economy.

Looking at the positive side, Poloz says the latest oil-price shock also arrives at a time when Canada's economy is running close to full tilt and the unemployment rate is at a 40-year low.

Canada's central bank chief indicated during a news conference in Toronto on Thursday that he may not be able to do much to lift markets, which have slumped this week amid concerns that trade tensions between China and the US are far from resolved. Weaker oil prices and associated production cutbacks mean activity in the energy sector is set to be materially weaker than expected.

TD senior economist Brian DePratto wrote about Wednesday's rate decision in a research note: "To be sure, while everything points to a January hike being off the table, the path thereafter is less clear, and a 491-word statement does not give much to work with".

Poloz has already raised interest rates five times since mid-2017 as he tries to return borrowing costs to more normal levels - possibly as high as 3 percent, according to recent statements. But the dramatic slump in oil prices, and efforts by the Alberta government to remedy the situation with production cuts, have muddied the picture for the economy.

"The current level of interest rates remains appropriate for the time being", Poloz said Thursday in a speech at an event hosted by CFA Society Toronto. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent.

The bank's rate directly affects the rates that Canadian consumers get from retail banks.

"Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target", said the bank, predicting inflation in coming months will ease more than previously forecast as gasoline prices fall.

The bank also said recent data show that the economy has less momentum heading into the final quarter of 2018 related to factors such as a drop in business investment that the bank largely connects to trade uncertainty last summer.

The bank expects corporate investment to improve - outside the energy sector - following last week's signing of the updated North American trade agreement, new federal tax incentives and ongoing pressure from rising demand. The bank pointed to recent downward revisions to gross domestic product data that suggested there's still some space for non-inflationary growth.

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