One of the biggest stories since the central bank's October rate hike is the pricing challenges facing Western Canadian oil producers, and the recent announcement of mandatory production curtailments, noted TD Economist in a research report.
The bank raised its benchmark rate, known as the target for the overnight rate, to 1.75 percent level in October, the fifth time since July 2017 that it made a decision to hike.
"(They) will also factor importantly into our decisions about the future stance of monetary policy", the bank said Wednesday in a statement.
The bank repeated Wednesday that future hikes also hinge on changes in global trade policies as well as how higher interest rates from past increases affect consumption and housing. Swaps trading suggests the Bank of Canada will cap its hiking cycle at no more than 2.25 percent, below its estimate of a "neutral" range for rates of between 2.5 percent and 3.5 percent.
Don't count on Bank of Canada Governor Stephen Poloz to save the day when it comes to the recent turmoil rocking stock markets.
"That said, given the consolidation that has taken place in the energy sector since 2014, the net effects of lower oil prices on the Canadian economy as a whole, dollar for dollar, should be smaller than they were in 2015".
"We think the odds of a hike at the January 9 meeting, in just a bit more than a month, has fallen significantly".
Oil prices have fallen sharply since the October Monetary Policy Report (MPR), reflecting a combination of geopolitical developments, uncertainty about global growth prospects, and expansion of USA shale oil production.
This morning's announcement comes in the wake of a move by the Alberta government to curtail oil production in the province after January 1 to try to clear a crude storage glut that has driven western Canadian oil prices to multi-year lows.
Poloz pointed to an unexpected decline in business investment over the summer as a key development - but he said the dive in oil prices has been the most-important "new shock".
The slowing economy "implies a longer time horizon for returning to neutral", said Andrew Kelvin, senior Canada rates strategist at Toronto-Dominion Bank in Toronto. Business investment fell in the third quarter, in large part due to heightened trade uncertainty during the summer.
The bank expects corporate investment to improve - outside the energy sector - following last week's signing of the updated North American trade agreement, new federal tax incentives and ongoing pressure from rising demand.
The bank added that it will be watching for positive developments such as signs the economy can still grow without stoking inflation. Downward historical revisions by Statistics Canada to GDP, together with recent macroeconomic developments, indicate there may be additional room for non-inflationary growth.