Interest Rates Hold Steady
Ottawa, May 29, 2019—The Conference Board of Canada’s Principal Economist Alicia Macdonald offers the following insights on today's Bank of Canada interest rate decision:
“In a move that surprised no one, the Bank of Canada decided to keep its overnight rate steady at 1.75 per cent this morning. Even with the Bank noting that the recent slowdown in economic growth appears temporary, as they had expected, we maintain our view that the Bank will remain on hold into next year.”
· The latest economic indicators suggest that first quarter economic growth will come in stronger than the Bank expected. However, growth will remain below the economy’s potential over the near term.
· Inflation continues to hover around the Bank of Canada’s 2.0 per cent target and the expected weakness in near term economic growth will keep price pressures muted for now.
· In its statement accompanying the decision, policy makers pointed to an oil market in recovery, stabilization in the housing market and indicated that they expect an acceleration in consumer spending and exports this quarter alongside an improvement in business investment.
· Despite the string of positives, the Bank also noted that trade disputes have elevated global risks and that an inventory build in the first quarter may dampen production over the rest of the year.
· Overall, the Bank remains data dependent when it comes to its next interest rate move and indicated that it is closely watching developments on the oil, trade and household front.
· While news on the domestic economic front has been positive recently, there remains significant risk on the export front as Canada’s two largest trading partners—the U.S. and China—struggle to resolve their trade dispute.
· Our latest forecast assumes that the elevated level of risk in the global outlook will continue to dampen domestic investment and, as a result, excess economic capacity will linger through next year. Excess capacity means the economy can grow over the near term without generating inflation pressures and that will keep the Bank of Canada on hold into next year.
Alicia Macdonald, Principal Economist
The Conference Board of Canada
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