OTTAWA—As the Canadian economy underperforms that of its neighbour to the south, the divergence in action from the two central banks begins to unfold.
The Bank of Canada held its overnight rate target at 0.50 percent on Dec. 7, as was widely expected. All signs point to the U.S. Federal Reserve raising rates next week.
At the start of 2016, the Fed had just raised its key policy rate for the first time in nearly a decade, while the Canadian economy struggled with US$30 oil. BoC governor Stephen Poloz reiterated in a speech in Toronto on Nov. 28 that, while low oil prices are positive for the U.S. economy, they’re negative for the Canadian economy. The divergence in monetary policy between the two economies looked set to play out over 2016.
But that didn’t happen as the Fed dialled back its desire to raise rates due to international risks and the U.S. economy hit a speed bump in the first half of the year. The Canadian economy swooned in the second quarter after the devastating wildfires in Alberta shut down energy production.
