Canada's central bank left its benchmark target for the overnight rate at 0.50 percent, as widely expected, but trimmed its forecast for economic growth "in light of a weaker outlook for business investment and a lower profile for exports, reflecting a downward adjustment to US investment spending."
The Bank of Canada (BOC), which cut its rate twice last year by a total of 50 basis points, lowered its forecast for Gross Domestic Product growth this year to 1.3 percent, down from its April forecast of 1.7 percent, and the 2017 forecast to 2.2 percent from 2.3 percent.
The forecast for 2018 was revised upwards slightly to 2.1 percent from 2.0 previously as domestic demand and exports were seen rising faster than previously expected as infrastructure spending and other fiscal measures boost activity while higher oil prices are now helping stabilize the energy sector and support household spending.
"The fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty," the BOC said, adding the risks to inflation were roughly balanced although the implications of Britain's decision to leave the European Union "are highly uncertain and difficult to forecast."
Canada's growth in the second quarter has been hit by wildfires in Alberta, which led to the shutdown of oil fields and uneven consumer spending, the BOC said, adding that growth was seen contracting by 1 percent before rebounding in the third quarter when growth would accelerate to 3.5 percent as oil production resumes and rebuilding begins in the city of Fort McMurray.
Inflation in Canada declined slightly to 1.5 percent in May from 1.7 percent in April but is seen on track to hit the BOC's 2.0 percent goal in 2017 when inflation is forecast to rise to 2.1 percent from 1.6 percent in 2016.
This forecast is higher than the BOC's forecast in April when it saw 1.4 percent inflation this year and 1.9 percent in 2017. For 2018 the inflation forecast was lowered to 2.0 percent from 2.1 percent.
The Bank of Canada issued the following statement: