Canada's central bank left its benchmark target for the overnight rate at 0.50 percent, as expected, confirming that it expects a "substantial rebound" in the economy in the second half of this year as oil production recovers, rebuilding begins in Alberta following wildfires in May and consumer spending is boosted from child benefit payments.
The Bank of Canada (BOC), which cut its rate twice last year by a total of 50 basis points, added the risks to its inflation profile had "tilted somewhat to the downside" since its July forecast.
And while there are signs of a possible moderation in Vancouver house prices, the BOC said financial vulnerabilities remain elevated and continue to rise.
Canada's economy shrank by 0.4 percent in the second quarter from the first quarter as economic activity, including oil production, was hit by the Alberta fires and larger-than-expected drop in exports.
But output is expected to pick up in the current quarter and then expand beyond its potential in the fourth quarter as the impact of federal infrastructure spending takes hold.
However, the BOC added that while the strength in July exports was encouraging, the "ground lost over previous months raises the possibility that the profile for economic activity will be somewhat lower than anticipated in July."
In July the BOC lowered its forecast for Gross Domestic Product growth this year to 1.3 percent 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.
Canada's inflation rate eased to 1.3 percent in July from 1.5 percent in May and June, below the central bank's 2.0 percent target, mainly due to lower energy prices. Core inflation was steady for the third month at 2.1 percent, reflecting the offsetting effects of excess capacity and past depreciation of the Canadian dollar.
In July the BOC forecast average 2016 inflation of 1.6 percent, rising to 2.1 percent in 2017. In 2018 inflation is seen at 2.0 percent.
The exchange rate of the Canadian dollar, known as the loonie, has been relatively steady since May but dropped in response to the BOC's decision today. The CAD was trading at 1.29 to the U.S. dollar today, down from 1.28 yesterday, but up 7.4 percent since the start of the year.
The Bank of Canada issued the following statement: