Canada Monetary Policy January 2019


Canada: Bank of Canada leaves rates unchanged, cuts 2019 growth forecast by 0.4 percentage points

January 9, 2019

On 9 January, the Bank of Canada (BoC) left its target for the overnight rate unchanged at 1.75%, as widely expected by market analysts.

The decision to hold was reinforced by the recent fall in oil prices, the prospect of a global economic slowdown and uncertainty over global trade policy. In the Bank’s quarterly monetary policy report, Canada’s growth estimate for 2019 was cut 0.4 percentage points from the previous report to 1.7%. Moreover, recent housing data suggests new mortgage guidelines and higher interest rates have softened housing investment and private spending more than the Bank had anticipated. On the price front, inflation fell below the 2.0% target in November on low gasoline prices and is set to remain subdued in the months ahead according to the Bank. This reduced the need for an imminent rate hike.

The Bank highlighted its commitment to a neutral long-term target of between 2.50% and 3.50% for the overnight rate. However, the BoC kept a dovish stance in light of recent developments, promising to reach neutral territory “over time”, without setting any concrete timeline for future rate hikes.

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

“No big surprise here. The rollercoaster ride of the past few months has brought a note of greater caution to the Bank of Canada's communications, and today’s decision looks to be an extension of that. Governor Poloz and company still see more rate hikes down the road, but aren’t in any great rush to get there.”

The Bank’s next monetary policy announcement is scheduled for 6 March.

Despite the impact of lower oil prices on inflation and demand, FocusEconomics Consensus Forecast panelists still see the BoC hiking rates this year, amid likely further tightening by the U.S. Federal Reserve. Our analysts see the target for the overnight rate ending 2019 at 2.33%. For 2020, analysts expect the rate to end the year at 2.41%.

Author:, Economist

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Canada Monetary Policy Chart

Canada Monetary Policy January 2019

Note: Target for the Overnight Rate in %.
Source: Bank of Canada (BoC).

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