The Bank of Canada is cutting its growth forecast for this year while still clinging to the belief that improving non-commodity exports will dominate the Canadian economic story, despite recent stumbles.

While the bank kept its key policy rate at 0.5 per cent on Wednesday, it put the spotlight on one of the pitfalls of cheap money -- soaring home prices in the Vancouver and Toronto areas and the growing financial risk that brings.

Governor Stephen Poloz warned just last month that Canada's hot housing markets were at rising risk of a pullback. On Wednesday, the bank re-affirmed its concern that record prices are lulling residents of those hot markets into the risky belief that the only trajectory for home values is up.

On the overall economy, the bank's thesis remains intact despite being tested by weak trade numbers.

In its Monetary Policy Report, the bank says non-resource sector growth will "assert itself as the dominant trend in the second half of 2016."

The story goes like this: improved exports will spur business investment, the creation of new firms and the jobs that go with it.

“To me that is the key part of the BOC statement that is probably going to get the most pushback from economists and the Street – should he really be so optimistic about exports going forward,” said Frances Donald, senior economist at Manulife Asset Management, in an interview with BNN. 

However, Poloz made it clear on Wednesday that he wasn’t going to be swayed by recent disappointments in the data. 

“You go through periods of angst like in the last three or four months -- exports have underperformed our expectations,” he said in a news conference.  “But for the three or four months before that, they outperformed those expectations.  We have to continue to look through those things.  We resist the idea of turning 180 degrees on our forecast because of the last few data points.”

Despite the optimism, Poloz was forced to cut the growth forecast for this year to 1.3 per cent from the 1.7 per cent forecast in April. Business investment intentions are still softer than expected and that export-led recovery is taking its time.

And then there was the unexpected devestation of the Alberta wildfires. The bank estimates the blaze will shave 1.1 percentage points of growth from second-quarter GDP, pushing those three months into contraction.

However, the recovery in oil production and the rebuiding in Fort McMurray will boost activity in the third quarter, with economic growth of 3.5 per cent projected.

Excluding the impact of the wildfires, the bank estimates the economy would have grown 0.1 per cent in the second quarter and 2.2 per cent in the third quarter.

Then there are the unknowns surrounding Brexit. While the bank stressed it will take time to fully assess the fallout, it sees only a modest 0.1 per cent hit to Canadian GDP over the next 18 months.

When it comes to the U.S. economy, the bank recognizes the recent weakness in business investment south of the border but sees a rebound in the second half of this year for Canada's largest trading partner. Uncertainty around the U.S. presidential race has been a dominant theme.

And when American companies come looking for Canadian goods, the Bank of Canada forecasts they'll be met with a favourable exchange rate of 77 cents US.

In fact, the bank see non-commodity exports exceeding levels seen before the recession -- starting next year.

“The key takeaway here is that it will take another very significant disappointment in the economy to get them to shift to an outright easing bias, let alone to cut further,” wrote BMO Capital Markets Chief Economist Doug Porter in a report to clients. 

The bank is also seeing evidence that the global oil market is making the neccesary supply-demand adjustments in the wake of the crash in crude prices. It assumes prices will remain near recent levels, namely US$49 for West Texas Intermediate and US$36 for Western Canada Select.

On the inflation front, the bank concedes it's been a little higher than anticipated as energy prices come off recent lows. But the bank continues to see pass-through effects of a lower loonie, which makes imports more expensive for Canadians.

Given the bank's new forecast, the economy isn't expected to return to its full potential until the end of next year.

Despite marking down economic growth for the year, the bank did bump up its projections for the contributions that housing and consumer consumption will make to GDP.