Briefing

Bank of Canada holds benchmark interest rate at 1.75 per cent

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The bank pointed to encouraging growth in the second quarter as a reason for keeping the rate, but said it expects economic activity to slow down in the second half of the year, citing the U.S.-China trade conflict and its negative effect on global trade and business investment. The rate will be updated again on October 30. (The Logic)

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Talking point: The decision comes as banks around the world, including the U.S. Federal Reserve, are cutting their interest rates as a response to slowing global growth. Holding interest rates steady is a sign that the bank believes Canada can withstand that pressure for the time being. Canada’s GDP growth increased to 3.7 per cent last quarter, which is the highest rate since the same period in 2017, but most of that growth was tied to exports, an area that’s especially vulnerable to the China-U.S. trade war, Brexit and worrying signals of a global economic recession. If the bank lowers borrowing rates in an effort to insulate Canada from those pressures, it risks elevating levels of private debt, which remain high after reaching record levels in 2018. Most of Canada’s exports are tied to the United States, where domestic spending remains strong. That could help cushion the country’s economy from the effects of decelerating global trade, although there are some signs that exports are already dropping. New data from Statistics Canada released Wednesday showed a 0.9 per cent decrease in exports in July.