Bank of Canada Keeps Interest Rate Unchanged at 1.75%

The Bank of Canada on Wednesday decided to keep the benchmark interest rate steady at 1.75% while absorbing the impact of drastically lower oil prices on the economy. The bank had earlier raised its rate to 1.75 per cent in October.

The bank’s rate directly affects the rates that Canadian consumers get from retail banks. When the central bank increases its interest rate, it makes borrowing more expensive — but it’s good news for savers.

Though the economists were not expecting an increase in the interest rate this time but they were cautious due to continuous fall in price of oil.
The current price of the Canadian oils and crude blend is as low as $14 US per barrel while the U.S. crude still trades at $50 US. If crude prices persist, the impact on the broader economy could be enough to warrant a change in monetary policy.

The Alberta government had already implemented cut to production levels to boost prices, and the bank took note of the issue in its statement Wednesday. “In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected,” the bank said. “A GDP hit is coming due to Alberta’s production cuts,” Scotiabank economist Derek Holt said.