Bank of Canada leaves rates unchanged at 1.75%, as expected

Author: Adam Button | Category: Central Banks

Highlights of the December 5 Bank of Canada decision

  • There may be more room for non-inflationary growth
  • Inflation has been evolving as expected
  • Future policy stance depends on oil, investment and capacity
  • Appropriate pace of hikes to depend on 'a number of factors'
  • Data show economy has less momentum going into Q4
  • Expects CPI to ease more than forecast in the coming months, due to lower gasoline prices
  • Household credit and housing markets appear to be stabilizing
  • Watching impact of tighter mortgage rules on builders and buyers
  • Oil prices have fallen sharply
  • Activity in Canada's energy sector will likely be materially weaker than expected
  • Business investment outside of energy expected to strengthen
  • Repeats that rates will need to rise to neutral
  • All 23 economists surveyed by Bloomberg forecast no change
  • Rates were hiked to 1.75% from 1.50% on October 24

USD/CAD was trading at 1.3287 shortly before the decision and rose to 1.3371 afterwards. This statement makes it much less likely that the BOC will hike in January. The line about more room for non-inflationary growth is key along with a strong emphasis on the oil price decline.

The final part of the statement focuses on effect of higher rates (was there previously), the persistence of the oil price shock (new), the evolution of business investment (new), global trade policy (was there previously) and the assessment of spare capacity in the economy (new).

Overall, the BOC looks to be setting itself up for a move to the sidelines for a few months. Poloz speaks tomorrow in a speech that's designed to fine tune expectations.

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