The Conference Board of Canada’s Senior Economist Robyn Gibbard offers the following insights on today’s Bank of Canada announcement.
The Bank of Canada held its policy rate steady this morning. The Bank’s last statement in October was relatively dovish in the face of headwinds. This time they sounded more bullish, with optimistic notes about global growth, stable commodity prices, and rising investment. They still devoted time to the downside risks facing the global economy, but the latest release means the likelihood of a January rate cut has fallen.
- The Bank of Canada held its overnight rate steady at 1.75 per cent this morning, matching the consensus expectation of economists.
- In the rate announcement published this morning, the Bank noted that growth was in line with expectations and suggested that the global economic picture was stabilizing. It also noted that commodity prices have been stable. This marks a shift from the October announcement, when the Bank was highlighting the weakening global economy and falling commodity prices as the major risks to Canada. The main downside risk cited by the Bank continues to be the effect of global trade tensions.
- The recently-released third quarter GDP numbers were in line with the Bank’s expectations. Consumer spending and wage growth continued to be strong. Business investment showed a surprise uptick. Exports fell, as expected. Overall, both the Bank and ourselves project another slow quarter of growth in the final quarter of 2019 before picking up next year.
- With the economy operating near its capacity, inflation has remained very close to the Bank’s 2 per cent target. These inflationary pressures give the Bank a compelling reason to hold off on rate cuts until downside risks actually materialize.
- The Bank of Canada has become an outlier among developed countries, holding steady for more than a year even as central banks elsewhere cut rates. Canada is now tied with the U.S. with the highest policy rate among G7 countries. As a result, the Bank of Canada will have more leeway than its counterparts to lower rates in the event of a downturn.
- The next scheduled rate decision is January 22, 2020. Given the Bank’s more hawkish tone in this rate decision, if a cut were to occur it seems more likely to come in March or April instead.