Cautious Bank of Canada Holds Rates Unchanged as Economy Nears Full Capacity

BoC says advances in technology, globalization having only minor effect on inflation

Governor of the Bank of Canada Stephen Poloz holds a press conference in Ottawa on Oct. 25, 2017. The central bank took a more cautious stance and held its overnight rate target at 1 percent. The Canadian Press/Sean Kilpatrick

OTTAWA—After two rate hikes since July, the Bank of Canada kept its overnight rate target at 1 percent on Oct. 25. Governor Stephen Poloz said the economy is in a “sweet spot” with growth stronger than expected and inflation rising less than expected. In short, the demand side of the economy is not keeping up with the expanding supply side.

With economic growth over the last four quarters averaging 3.7 percent, the central bank, not surprisingly, expects it to moderate in the second half of 2017. Exports are projected to be lower than what was forecast in July due to the rapid rise in the Canadian dollar. The loonie rose by more than 13 percent from early May to mid-September.