Canada Monetary Policy January 2020


Canada: Bank of Canada leaves rates unchanged in January and strikes a more dovish tone

January 22, 2020

On 22 January, the Bank of Canada (BoC) left its target for the overnight rate unchanged at 1.75%, as had been widely expected by market analysts.

The Bank’s decision to stand pat was driven by inflation successively landing close to target, with inflation clocking in at 2.2% for the second consecutive month in December. The BoC expects price pressures to remain roughly on target in the short-term—barring some fluctuations induced by volatility in oil prices. Moreover, the Bank noted global trade tensions have thawed somewhat, but a resurgence in geopolitical risks continue to cloud the global outlook. The Bank also stressed a mixed view towards domestic economic conditions, which may be partly attributed to temporary setbacks, but “could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted”.

In its communiqué, the Bank was noticeably more dovish, highlighting cautious consumers, a slowdown in job creation and tepid business investment levels. Nevertheless, strong income and population growth, as well as the federal government’s recent tax cut, should support household spending and the housing market—two pillars of the Canadian economy—this year. Overall, most of our panel still expects the Bank of Canada to cut rates at least once before the end of this year.

Commenting on January’s meeting, James Marple, a senior economist at TD economics, noted:

“Overall, this statement and forecasts are consistent with our expectation for a 25 basis point cut in the overnight rate later this year. While Canada benefited last year from lower global interest rates without the Bank of Canada having to lift a finger, an apparent bottoming in global growth (at a low level) and détente on the trade front may reverse the fall in yields over the next several months. A softening economic outlook alongside tighter financial conditions is a recipe for pushing the Canadian economy further below potential and weakening inflation, conditions the Bank of Canada will not ignore, as it made obvious today.”

The next monetary policy meeting is scheduled for 4 March.

FocusEconomics Consensus Forecast analysts see the target for the overnight rate ending 2020 at 1.60%. For 2021, analysts project the target for the overnight rate to end the year at 1.68%.

Author:, Economist

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Canada Monetary Policy Chart

Canada Monetary Policy January 20 20 0

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

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