Canada's central bank left its benchmark target for the overnight rate unchanged at 0.50 percent, surprising many economists that had expected a rate cut in light of the hit to economic growth from the continuing fall in crude oil prices.
The Bank of Canada (BOC), which cut rates twice last year by a total of 50 basis points, acknowledged the fall in oil prices - it was trading below $28 a barrel today - was a setback for economic activity, with growth likely stalling in the fourth quarter of 2015 due to "temporary softness in the U.S. economy, weaker business investment and several other temporary factors."
In its January monetary policy report, the BOC cut its forecast for growth in 2016 to 1.4 percent from its October forecast of 2.0 percent, and trimmed the 2017 forecast to 2.4 percent from 2.5 percent, though growth was seen hitting 2.5 percent by the fourth quarter of next year.
For 2015 the BOC saw growth of 1.2 percent, up from a previous 1.1 percent.
However, it added that the lower Canadian dollar, stronger U.S. demand and its accommodative monetary policy was helping the country reorient toward non-resource activities and employment had remained resilient despite job losses in the resource sector, and household spending was expanding.
"All things considered, therefore, the risks to the profile for inflation are roughly balanced," the BOC said, adding that financial vulnerabilities had continued to edge higher, as it expected.
Canada's consumer price inflation rose by 1.4 percent in December from 1.0 percent in the two previous months while the core inflation rate eased to 2.0 percent, the lowest rate seen in 2015.
The BOC, which targets inflation of 2.0 percent, plus/minus 1 percentage point, said it still expects inflation to rise to about 2 percent by early 2017 and that core inflation was close to 2 percent.
The BOC forecast consumer price inflation of 1.4 percent for the fourth quarter of 2016, down from its previous forecast of 1.6 percent, and 1.9 percent inflation for the fourth quarter of 2017, down from 2.0 percent previously forecast.
Unemployment was steady at 7.1 percent in December though it has been edging up since a low of 6.6 percent seen in January.
The Canadian economy expanded by 0.6 percent in the third quarter, up from quarterly contractions seen in the first and second quarter.
On an annual basis, Gross Domestic Product grew by 1.2 percent in the third quarter, up from 1.1 percent in the second quarter but below a 2.1 percent rate seen in the first quarter.
The Canadian dollar has been dropping in sync with plunging crude oil prices since mid-2014, reaching levels not seen in the last decade.
Since July 1, 2014, the dollar, known as the loonie, has depreciated 27 percent against the U.S. dollar and in 2015 it lost 16.5 percent.
Today the loonie was trading at 1.46 to the U.S. dollar, down 4.8 percent just since the start of 2016, but firmed slightly in an immediate response to the central bank's decision to hold its rate.
The Bank of Canada issued the following statement: