Canada Monetary Policy April 2019


Canada: Bank of Canada leaves rates unchanged and adopts more dovish stance

April 24, 2019

On 24 April, the Bank of Canada (BoC) left its target for the overnight rate unchanged at 1.75%, as widely expected by market analysts.

The Bank’s decision to stand pat was reinforced by muted inflationary pressures and softer than previously anticipated global and domestic growth. In the first quarter, inflation was in the lower part of the Bank’s 1.0%-3.0% target range (March: 1.9%). Moreover, the Bank expects inflation to dip in Q3 due to developments in gasoline prices. On the demand front, trade headwinds have led to a weakening global growth backdrop, while soft investment and exports in the energy sector have dampened domestic momentum.

Going forward, the Bank will likely keep rates unchanged in the near-term amid a synchronized global slowdown, mild domestic price pressures and more dovish monetary stances by other major central banks, such as the U.S. Federal Reserve. The BoC struck a more dovish tone in its communiqué, dropping references to future rate hikes altogether, while also downgrading its estimate for the neutral target policy rate range—the range consistent with the economy operating at its long-run potential—by 0.25 percentage points to 2.25%–3.25%. In addition, the Bank cut its 2019 economic growth forecast by 0.5 percentage points to 1.2%.

Commenting on the BoC’s decision, Brian DePratto, senior economist at TD Economics, noted:

“With all these downgrades, is Governor Poloz signaling a rate cut? No, or at least, not yet. While the risks may skew in that direction, the Bank's view remains that the current growth soft patch is temporary, with 2020 growth left unchanged at an above-trend 2.1%, and with better details (upgrades to consumption and housing). The bar for easing is probably a bit higher given fairly soft near-term growth expectations, so expect to sit at the current 1.75% overnight rate for some time to come.”

The Bank’s next monetary policy announcement is scheduled for 29 May.

Last month, our analysts saw the target for the overnight rate ending 2019 at 1.95%. For 2020, analysts expected the target for the overnight rate to end the year at 2.00%. A new Consensus Forecast will be published on 30 April.

Author:, Economist

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