Deputy governor Lynn Patterson said in a speech Thursday that the central bank had been expecting a growth slowdown in the energy sector over the final three months of 2018, particularly after the oil-price drop late in the year.
However, the country's slowing economy has led to building uncertainty about the timing of future rate hikes, a stark change from the Bank of Canada's statement in January that rates were expected to rise to an estimated range of between 2.5 and 3.5%.
The first half of this year will probably be weaker than we forecast.
The first half of 2019, the bank added, is now on track to produce weaker numbers than its projection two months ago.
Key policymakers in both the United States and UK signalled it was more prudent to be patient with rates than rush them higher.
Given the mixed picture, the central bank said it would "take time to gauge the persistence of below-potential growth and the implications for the inflation outlook". Household consumption, real estate, exports, and business investment all stumbled, catching policy makers off guard.
Bank of Canada governor Stephen Poloz is next scheduled to meet with other members of the bank's governing council and reveal their decision on where to set the bank's interest rate on April 24, 2019. With increased uncertainty about the timing of future rate increases, Governing Council will be watching closely developments in household spending, oil markets, and global trade policy. The Bank of Canada has already raised rates by 1.25 percent since mid-2017.
"Against this backdrop, I'd expect the hurdle rate to resume rate hikes to be quite high", said Sophia Drossos, a former economist at the U.S. Federal Reserve and Morgan Stanley, who now runs her own advisory firm in NY.
But it acknowledged the slowdown ended up being "sharper and more broadly based".
Domestically, Canada's GDP slowed in the fourth quarter, dragged by consumer spending and a soft housing market. Consumption spending grew at the slowest pace in nearly four years, housing investment fell by the most in a decade, business spending dropped sharply for a second straight quarter, and domestic demand posted its largest decline since 2015.
At 2:54 p.m., the Canadian dollar was trading 0.1 per cent lower at 1.3456 to the greenback, or 74.32 USA cents.
That line will reinforce the emerging consensus that the Bank of Canada's quest for higher interest rates is over.
The Bank of Canada said it expects inflation to be slightly below its 2 percent target for most of 2019 on temporary factors, including lower energy prices and a wider output gap.
"It is clear that global economic prospects would be buoyed by the resolution of trade conflicts", the bank said.
The price of West Texas Intermediate fell slightly as USA fuel stockpiles dropped during the week to offset an increase of 7.1 million barrels of crude inventories.