Canadian economy resilient despite global uncertainty

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The Bank of Canada kept its key interest rate on hold Wednesday, noting that while global recession concerns are waning, trade conflicts and related uncertainty continue to remain a key risk.

Stephen Poloz, governor of the central bank, made the announcement Wednesday morning, leaving the rate unchanged for the ninth meeting in a row.

The central bank is expected by economists to keep its key interest rate target steady at 1.75 per cent, where it has been set since October of a year ago.

In a speech to the Ottawa Board of Trade, deputy governor Timothy Lane said inflation in Canada remains on target and a strong job market points to sources of growth.

Variable-rate mortgages, which are tied to the Bank of Canada's overnight rate, stay where they are.

"Anyone with a variable rate will be disappointed that Canada is not following other central banks who have consistently been reducing their rates", James Laird, co-founder of Ratehub, told Yahoo Finance Canada.

The Bank of Canada laid out a staunch defense of its decision to buck the global easing trend, citing a resilience in the nation's economy that is allowing it to "chart its own course in monetary policy".

The Bank of Canada held steady in its last meeting, too, the same day that the US Federal reserve chose to cut rates by 25 basis points.

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"Many people wonder why we have held our key policy rate steady over the past year while many other central banks have lowered their rates", Lane asked. "Moreover, data have been revised upward, revealing that investment earlier this year was higher than previously reported", Lane said.

"There is no reason for the Bank of Canada to move in step with the Fed". The central bank said in its latest quarterly report on the economy that it thought the gap in the third quarter was between zero and minus one, or essentially closed.

The statement noted that the economic growth of Canada decelerated in the third quarter, but the remainder of its characterization noted underlying strength, especially in housing investment and "unexpectedly" in business investment spending.

Inflation remains at the bank's 2% target and is expected to track close to that figure for the next two years.

To be sure, the flicker of hope that the global economy has taken a turn for the better could prove ephemeral.

Stock markets tumbled from record highs as Trump opened new fronts in his trade wars, and then recovered somewhat on December 4 after Bloomberg News reported that the USA and China were close to an agreement that would reduce some tariffs.

Policymakers said they continue to "monitor the evolution of financial vulnerabilities related to the household sector", which is how the Bank of Canada expresses its concern about elevated levels of household debt.

Sal Guatieri, senior economist with BMO Capital Markets, said the bank appeared to be taking comfort from the rebound in business investment and steady growth in consumer spending. The U.S. Federal Reserve has cut its rate three times this year.

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