Canada

Wednesday, April 24, 2019 - 10:15

MNI POLICY:BOC Key Rate Unchanged; Drops Ref To Rate Hikes


By Courtney Tower

OTTAWA (MNI) - Following are the key points from the Bank of Canada's interest rate announcement and quarterly economic analysis Wednesday, when the policy interest rate remained at 1.75%, as expected:

- The key BOC rate remains at 1.75%, with the Bank of Canada dropping any reference to future rate increases in its policy statement. The BOC also lowered its estimate of the neutral range to 2.25%-3.25% from 2.5%-3.5%. The comment about the policy rate coming up to the neutral rate is dropped, suggesting that with the slowing of the Canadian economy, rate hikes to get to the neutral rate are further off than had been expected. The BOC said an important contributor to the change was a drop of 0.25 percentage points in the global neutral rate estimate, "and improved modelling."

- Given several evidences of slower global and Canadian growth, the BOC said that "an accommodative policy interest rate continues to be warranted." The Bank will continue to depend on monitoring new data as it arrives to "evaluate the appropriate degree of monetary policy accommodation". It particularly is monitoring developments in household spending, oil markets and global trade policy, "to gauge the extent to which the factors weighing on growth and the inflation outlook are dissipating."

- Canada's growth is expected to pick up starting in the second quarter this year. Housing conditions will stabilize "given continued population gains, the fading effects of past housing policy changes, and improved global financial conditions." The BOC sees consumption being "underpinned by strong growth in employment income." Business investment and exports, weak in the energy sector and weakened outside it because of "trade policy uncertainty and the global slowdown," will strengthen outside of the oil and gas sector. Reasons will be high rates of capacity utilization and stronger global demand.

- Global growth has slowed by more than the BOC had forecast in January, being expected to rise by 3.2% in 2019 rather than 3.4%. It is expected to increase by 3.3% rather than 3.4% in 2020 and by 3.3% in 2021. Trade uncertainties, between the U.S. and China, the U.S. and Europe, the U.S. and Canada, are given as the main factor. For Canada, the BOC sees real annualized GDP growth of 0.3% in the first quarter this year rather than 0.8%, but rebounding to 1.3% in the second quarter. Real GDP growth of 1.2% is expected for all of 2019, picking up to 2.1% in 2020 and 2.0% in 2021.

- Total inflation, represented by the Consumer Price Index, and the Bank of Canada's three core measures, all are close to the 2% target and are expected to remain so through this year, 2020, and 2021. Total inflation will likely dip in the third quarter this year, largely on gasoline prices, but return to around 2% by year-end, the Bank said.

--MNI Ottawa Bureau; yali.ndiaye@marketnews.com

[TOPICS: M$C$$$,MACDS$]

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