Sunday, 16 December, 2018

Bank of Canada Pares Back Optimism as It Holds Rates Steady

Bank Of Canada Leaves Key Interest Rate Unchanged Canada will feel oilpatch pain, but likely won't be as bad as 2015: Poloz
Priscilla Morrison | 08 December, 2018, 23:27

Rate-setters left the overnight rate at 1.75%, the bank rate at 2% and the deposit rate at 1.5%.

The Bank of Canada has chose to keep its benchmark interest rate right where it is while it digests the impact of its previous policy decisions and the cooling economy. Canada's government bonds rallied and the loonie tumbled as traders repriced odds of a January hike.

Recent data, the bank noted, also show the economy has less momentum heading into the final quarter of 2018.

TD senior economist Brian DePratto wrote about Wednesday's rate decision in a research note: "To be sure, while everything points to a January hike being off the table, the path thereafter is less clear, and a 491-word statement does not give much to work with". Poloz pointed to recent downward revisions to gross domestic product data that suggested there's still some room for non-inflationary growth. This indicates they believe there could be more excess capacity in the economy than policy makers had been estimating and implies less of a need for rate increases.

Weak commodity prices had already been expected dampen investment and exports in the Bank's last communique, but recent moves are seen as making the outlook for the sector "materially weaker". The price of western Canadian oil, the bank added, has fallen further than other benchmarks because of transportation constraints that have led to production cuts.

The Canadian dollar depreciated after the decision, trading 0.8 percent lower to C$1.3371 against its USA counterpart at 11:11 a.m.in Toronto.

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As recently as October, investors were anticipating at least three more hikes by the end of next year - but those expectations have dwindled to no more than two.

The governing council of the Bank of Canada left interest rates unchanged after its monetary policy meeting today (December 5).

"The persistence of the oil-price shock, the evolution of business investment and the bank's assessment of the economy's capacity will also factor importantly into our decisions about the future stance of monetary policy", the bank said Wednesday in a statement.

Advertisment The Canadian dollar fell below 75 cents US for the first time in 18 months on Wednesday after the Bank of Canada announced that it is standing pat on interest rates for the time being.

But governor Stephen Poloz estimates the latest drop in crude prices will likely have less bite across the country than the 2015 oil-price crisis, which contributed at the time to a slight, technical recession.

The Bank of Canada's benchmark interest rate - known as the target for the overnight rate - remains at 1.75%.

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