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

Author: Adam Button | Category: Central Banks

Bank of Canada holds rates at 1.75%

The decision to hold rates was universally forecast by economists and comes as no surprise. Highlights from the statement:

  • Repeats that accommodative policy interest rate continues to be warranted
  • BOC will remain data dependent
  • Overall growth and business investment has firmed
  • Data reinforces that Q4/Q1 slowdown was temporary
  • Economic data are in line with projections
  • Oil sector beginning to recover
  • Indicators point to more stable housing
  • Escalating trade conflict casts doubt on global outlook
  • Repeats that it's 'especially attentive' to household spending, oil markets and the global trade environment
  • Recent data support a pickup in both consumer spending and exports in the second quarter
  • No mention of returning to neutral (there wasn't in the last statement either)
  • Full text
The line saying data is in line with projections is a surprise and it's a bit disingenuous. The data has been very strong in Canada and economists now see growth at +1.5% compared to +1.2% at the BOC. At the same time, I understand the hesitancy to tout better growth because it can fall apart in a hurry, given some of the foreign risks.

Still, the market expected to see a signal on better forecasts and it's not there. That's why USD/CAD has risen on the headlines.

Another line of thinking is that there is a harder shift to neutral here.

The new statement says: "The degree of accommodation being provided by the current policy interest rate remains appropriate."

The old statement said: "Accommodative policy interest rate continues to be warranted. We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive."

One way to read that is that the old statement was saying they could shift based on new data and that there was still a slight hiking bias.

I disagree with that assessment and it doesn't truly fit with the broader line from the BOC that reads like this: "Overall, recent data have reinforced Governing Council's view that the slowdown in late 2018 and early 2019 was temporary, although global trade risks have increased. In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate."

That shows the BOC highlighting upside risks (domestic) and downside risks (trade) and even highlights that it's the 'context' and uses the word 'remains'.

In any case, USD/CAD tried to break out of the range and hit a five-month high of 1.3547 but is right back down to 1.3508 because there isn't really much to digest here. Wilkins speaks tomorrow at 1815 GMT.
Canadian dollar chart

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