OTTAWA - It is essential for the bulk of Canadian economic activity to begin shifting from the backs of households to business investment and exports, the Bank of Canada said Wednesday as it kept its trend-setting interest rate fixed at one per cent.
In its monetary policy report, the central bank pointed to rock-bottom borrowing rates as a contributor to "renewed vigour" in consumer spending and the real estate market since July.
"Household spending still represents more than its long-run sustainable share of growth and a rotation away from household spending toward business investment and exports is essential," the bank said in the report.
"Exports have been gaining traction, in line with the growing momentum in the U.S. economy, but investment remains weak."
The bank warned consumer spending has led to near-record-high housing prices and debt, leaving households exposed to economic shocks.
For Canada, the bank adjusted its July growth prediction, nudging it up one-tenth of a point to 2.3 per cent for this year. It's keeping to its 2015 expectation at 2.4 per cent growth.
Global growth, meanwhile, has been disappointing due to factors such as financial stress in China and geopolitical uncertainties.
Bank of Canada governor Stephen Poloz said exports appear to be improving, with some help from a lower Canadian dollar.
"Our conversations with exporters indicate that they are seeing a better export outlook from the ground," Poloz said in prepared remarks.
"However, it is clear that our export sector is less robust than in previous cycles."
Poloz had been scheduled to take questions at a news conference Wednesday morning, however it was cancelled after a shooting on Parliament Hill that prompted a police lockdown of downtown Ottawa.
The central bank governor's appearance before the House of Commons finance committee was also cancelled as well as plans for him to meet with the Senate banking committee on Thursday.
Bank of Montreal chief economist Doug Porter called the central bank's statement Wednesday the "very essence of neutral."
"For every negative, there's a positive. For every fading concern, there's an emerging risk," Porter said.
"In other words, the bank's main point is that it feels zero urgency to do anything with rates, either up or down. Their forecasts seem perfectly reasonable for now. Perhaps the only surprise is that they didn't dwell on the downbeat aspects of the outlook."
The bank maintained its overnight-rate target at one per cent — where it's been set for more than four years — because of the collection of pressures from all sides on Canadian inflation, such as the lower dollar, cheap oil prices and disappointing global economic growth.
Since July, the bank said core inflation, which excludes some energy and food-related goods, climbed more quickly than anticipated, but remained close to its optimal two per cent target. The bank said underlying inflationary pressures are "muted."
In the prepared statement, Poloz said factor in achieving the bank's inflation objective over a reasonable time frame are roughly balanced.
"Accordingly, we believe that the current level of monetary stimulus remains appropriate," he said.
CIBC chief economist Avery Shenfeld noted the central bank has decided to say less about where rates are headed in its statement, but isn't saying anything really that different.
"The final paragraph no longer says that rates could go up or down, merely that one per cent rates are appropriate," Shenfeld said of the Bank of Canada's statement.
"While some might judge that as more hawkish, we see it as merely reflecting the recent speech by the governor, in which he argued that forward guidance should not be offered except in the special case where rates are at zero."
The central bank projects the Canadian economy to gradually return to its full production capacity in the latter half of 2016.
The report also examined some of the pros and cons of the sudden plunge in oil prices in recent weeks.
"While lower oil prices would benefit consumers, their effect on Canada would, on balance, be negative, reducing Canada's terms of trade and domestic income," the document said.
An enduring stretch of cheap crude could also discourage investment and activity in the oil industry as well as the sector's supply chain, which reaches well beyond Alberta's oil patch.
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