Canada maintains rate but drops reference to rate hikes25th April 2019
Canada’s central bank left its benchmark target for the overnight unchanged for the fourth time in a row and turned even more dovish by dropping any references to the need for further rate hikes and signaling it may even consider cutting interest rates.
The Bank of Canada (BOC), which has maintained its key rate at 1.75 percent since October 2018 when it raised it for the 5th time since July 2017, said economic growth has slowed even more than it forecast in January and “an accommodative policy interest rate continues to be warranted.”
“We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive,” BOC said in its statement, adding it was keeping a close eye on household spending, oil markets and global trade policy to see how factors that are weighing on growth dissipate.
In January the BOC lowered its growth forecast and then in March it began its shift toward a more dovish policy stance – a shift also seen in the U.S. and Europe – by saying there was increased uncertainty about the timing of further hikes in light of slowing economic growth.
“Ongoing uncertainty related to trade conflicts has undermined business sentiment and activity, contributing to a synchronous slowdown across many countries,” BOC said.
Canada’s economy slowed in the second half of last year and growth in the first half of this year is now expected to be even slower than anticipated in January as last year’s fall in oil prices and transportation limits had curbed investment and exports in the energy sector while investment and exports in other sectors had been affected by trade policy uncertainty and the global economic slowdown.
Gross domestic product growth in the fourth quarter of 2018 fell to only 0.1 percent from the third quarter for annual growth of 1.6 percent, down from 1.9 percent in the third quarter.
But GDP grew 0.3 percent in January from December after two straight months of decline and BOC expects growth to pick up in the second quarter, helped by the decision by major central banks to slow down the pace of monetary policy normalization, which has improved financial conditions and sentiment in financial markets.
In its latest monetary policy report, BOC lowered its forecast for 2019 economic growth to 1.2 percent from January’s forecast of 1.7 percent, and its 2018 estimate to 1.8 percent from 2.0 percent.
The forecast for 2020 was unchanged at 2.1 percent and for 2021 growth is seen at 2.0 percent.
Canada’s headline inflation rate has ticked up in the last three months to 1.9 percent in March along with core inflation, which also rose to 1.6 percent.
BOC raised its forecast for 2019 headline inflation to 1.9 percent from January’s 1.7 percent forecast and down from 2.3 percent in 2018. For 2020 and 2021 inflation is seen at BOC’s target of 2.0 percent.
The Bank of Canada released the following press release:
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