OTTAWA: Canada's central bank maintained its key lending rate at 0.5 percent Wednesday while signaling hope for an economic rebound in the coming months following a dismal first half of 2016.
Recently released economic data showed the biggest quarterly decline in GDP in seven years in the second quarter due to a disruption of oil production caused by massive wildfires, while an across-the-board downturn in exports was the worst since 2009.
But the Bank of Canada said it expects to see a boost from government infrastructure spending and the resumption of oil production in the second half of the year.
In a statement, it said the impact of the Alberta wildfires, which spread over 500,000 hectares (1.2 million acres) of dense forest, and the 4.5 percent drop in exports were "larger and more broad-based than expected."
Oil output was reduced in May by an estimated 1.2 billion barrels per day at a time when Canada's economy was still adjusting to the 2014 rout that sent crude prices plunging from above $100 per barrel to below $50.
But as oil production recovers and Fort McMurray in the heart of the Alberta oil sands region starts to rebuild, the economy will bounce back, the bank forecasted.
"The bank still projects a substantial rebound in the second half of this year," it said.
The bank noted a healthy labor market and solid consumption, but pointed to uncertainty about business investments going forward.
It also said Canadians' high household debt, despite moderation in real estate activity in Vancouver after the city introduced a 15 percent foreign buyer tax, remained a concern.
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