Canada's central bank left its benchmark target for the overnight rate at 0.50 percent, as widely expected, but lowered its growth forecast for this year and next year due to a slowdown in housing sales and a lower-than-expected increase in exports.
The Bank of Canada (BOC), which cut its rate twice last year by a total of 50 basis points, said it considers the risks around its latest inflation forecast to be "roughly balanced, albeit in a context of heightened uncertainty."
In September the BOC said that the risks to inflation had "titled somewhat to the downside" since its previous Monetary Policy Report in July.
The BOC has often been concerned about the impact of rising home prices in parts of the country but said new housing measures by the government to promote more stability should help cushion the risks to financial stability.
The central bank lowered its forecast for Canada's Gross Domestic Product to grow by 1.1 percent this year, down from 1.3 percent forecast in July, and to 2.0 percent in 2017, down from 2.2 percent. In 2018 the country's economy is still seen expanding by 2.1 percent.
In the second quarter of this year Canada's economy grew by an annual rate of 0.9 percent, down from 1.2 percent in the first quarter but the BOC still expects economic activity to exceed the country's potential in the second half of this year as it continues to adjust to the shock from lower oil prices and a hit to growth from wildfires in Alberta.
"This projection implies that the economy returns to full capacity around mid-2018, materially later than the Bank had anticipated in July," the BOC said.
Exports are now seen growing by only 0.2 percent this year, down from 0.3 percent seen in July, and by 0.8 percent in 2017, down from 1.1 percent. In 2018 exports are forecast to grow 1.0 percent, down from 1.3 percent.
Canada's inflation rate continues to be below expectations due to weak gasoline, food and telecommunications prices.
In August headline inflation fell to 1.1 percent from 1.3 percent in July and the BOC trimmed its 2016 inflation forecast to 1.5 percent from 1.6 percent and the 2017 forecast to 1.9 percent from a previous forecast of 2.1 percent.
In 2018 inflation is seen averaging 1.9 percent, just below the BOC's 2.0 percent target, and below the July forecast of 2.0 percent.
Canada's dollar has been trending downward against the U.S. dollar since 2013 but reversed course in mid-January this year when it rose sharply. But since early May it has been easing slightly and was trading at 1.31 to the USD this morning, up 6.1 percent since the start of the year.
The Bank of Canada issued the following statement: