The Bank of Canada held interest rates steady on Wednesday, as expected, saying that while economic growth is likely to moderate in the second quarter, government measures to rein in the housing market have not yet had a substantial cooling effect.
Reiterating its position that excess capacity remains in the economy and wage growth is subdued, the central bank nevertheless noted strong spending by Canadians along with a housing boom and job growth.
"Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions," the bank said in a statement accompanying the interest rate decision.
The bank kept the benchmark interest rate at 0.50 per cent, as widely expected, saying its monitoring of data suggests that very strong growth in the first quarter of the year will be followed by "some moderation" in the second quarter.
Do you think the Bank of Canada is waiting too long to raise rates?
CIBC Deputy Chief Economist Benjamin Tal told BNN in an interview Wednesday that he thinks the central bank should raise interest rates now – slowly -- and that he sees no reason to keep them on hold.
“The economy is doing fine,” he said. “The question I'm asking myself is, are we in any emergency at this point? Remember, current interest rates are basically emergency rates. And I’m asking myself, where's the emergency?”
Tal said he believes the central bank isn’t moving rates in an effort to keep the loonie low.
“I think the Bank of Canada is trying to keep the dollar as low as possible,” Tal said. “I think that’s their agenda. And everything they’re doing is based on this agenda.”
However, the Canadian dollar jumped on the bank’s statement this morning, and was trading at 74 cents US as of 12:05 p.m. ET.
Tal’s counterpart at TD, however, believes the bank is just exercising its version of risk management.
“I think the bank’s really going to be cautious about really making sure this is a durable recovery, and making sure the growth is really there,” TD Chief Economist Brian DePratto told BNN on Wednesday. “I think they’d rather have a little bit of an overshoot in terms of inflation rather than an undershoot.”
DePratto pointed to trends in 2016 that saw growth figures tempered by the wildfires that ravaged Alberta in the early part of the year as grounds for the central bank to exercise caution.
“Admittedly, it’s a very low rate but I think that risk management suggests keeping it where it is,” he said.
The central bank said that inflation is broadly in line with the bank's projection in April despite temporary downward pressure from lower food prices. While noting the country's exporters continue to face "ongoing competitiveness challenges," it said recent indicators of business investment are encouraging.
While recent macroprudential measures aimed at cooling the housing market have contributed to more sustainable debt profiles, they "have yet to have a substantial cooling effect on housing markets," the bank said. Governments have tightened mortgage lending rules and imposed a foreign buyers’ tax in Vancouver and Toronto amid fears of a housing bubble.
-- With files from BNN