TORONTO (AP) – Canada’s central bank has kept its key interest rate unchanged

While it was the crash in crude and its profound effect on the economy that moved Bank of Canada Governor Stephen Poloz to cut rates twice a year ago, the governor held steady in Wednesday’s decision.

The exchange rate likely weighed heavily on Poloz’s decision, said BMO chief economist Doug Porter.

National Australia Bank sees the Canadian dollar under-performing the Australian and New Zealand dollars this year because of the comparatively worse terms of trade for Canada on weak oil prices.

Also Wednesday, the bank released its quarterly monetary policy report (MPR), which gives a more detailed view of the bank’s views on the economy.

The Bank of Canada now expects 2016 growth of 1.4 percent and 2017 growth of 2.4 percent.

While the Canadian economy is reasonably diversified compared to countries like Venezuela or Saudi Arabia, it is still relatively dependent on crude oil and other commodities, The ongoing decline in commodity prices has hit Canada’s economy hard, and related to this, the Canadian dollar has also taken a beating over the last several months. Over the past two years, the Canadian dollar has fallen 33% against the greenback, the biggest decline since the currency was unpegged from the US dollar in 1970.

The Canadian economy endured a shallow recession in the first half of 2015.

This month, a blend of both dynamics is at play: sluggish fourth-quarter data suggest that there is more economic slack than the Bank of Canada envisioned in October, while declining inflation expectations and subdued hiring plans imply more weakness on the horizon.

There are some negatives to a lower loonie, such as higher prices for imported food which can impact consumer spending and as we saw in the 1990s, the loonie could eventually reach a point where the Bank of Canada’s ability to cut rates further could be limited. The BoC would cut the interest rate an additional time in 2015 for a record low 0.50 percent.

The new Liberal government has pledged to stimulate the economy with deficit-fuelled infrastructure spending. As Bank of England Governor Mark Carney indicated yesterday, there is still no real incentive for the BoE to raise rates even with the tightening in labour market.

The Canada-US two-year bond spread was 13.3 basis points less negative at -44.2 basis points, while the 10-year spread was 3.5 basis points less negative at -82.3 basis points as Canadian government bonds underperformed.

The protracted process of reorientation towards non-resource activity is underway, helped by stronger USA demand, the lower Canadian dollar, and accommodative monetary and financial conditions.

Employment, meanwhile, remains resilient despite massive job losses in the Canadian oil patch.

The focus shifted to whether the central bank will cut at its next interest rate announcement in March, or in April, when it delivers its next monetary policy report.