Bank of Canada governor Stephen PolozClick image to enlarge

The Bank of Canada, citing the sharp drop in oil prices and consequent softness in the economy, is holding its benchmark interest rate steady at 1.75 per cent.

Bank of Canada governor Stephen Poloz made the announcement on Wednesday in Ottawa.

The bank says it now expects the Canadian economy to grow at a slower pace this year than earlier anticipated. GDP is predicted to expand by 1.7 per cent rather that the 2.1 per cent initially forecast.

The bank also held steady on interest rates in December, after hiking rates in October.

The BoC says that interest rates will ultimately have to go up, but that the pace of future increases “will depend on how the outlook evolves, with a particular focus on developments in oil markets [and] the Canadian housing market.” In a speech on Thursday Poloz also noted that disruptive technologies are making it harder to determine when – and by how much – to raise interest rates, according to Global News.

While the drop in oil prices is of particular concern, other negative factors, such as falling export volumes in eight out of 11 sectors tracked by Statistics Canada, and weak home prices, are also having a material impact on Canada’s economic outlook.

At the same time, Poloz says the effects of the oil price slump should lessen in the coming months, perhaps allowing economic growth to resume “as the snow melts.”

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