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Canada Monetary Policy September 2019

Canada: Bank of Canada leaves rates unchanged in September, expects slower growth in H2

On 4 September, the Bank of Canada (BoC) left its target for the overnight rate unchanged at 1.75%, as had been widely anticipated by market analysts.

The Bank’s decision to stand pat was backed by stronger-than-expected growth in the second quarter. As a result, additional monetary stimulus was not warranted, despite heightened trade tensions, moderating global demand and the recent slip in key commodity prices. Furthermore, inflation hit the midpoint of the Central Bank’s target range of 2.0% in June and July, and is expected to remain close to the target in the coming months. On-target inflation thus gave the BoC the ability to remain on the sidelines and watch global developments unfold.

Going forward, the Bank gave no explicit guidance as to the future direction of interest rate movements, although the tone of the communiqué was slightly less dovish than markets had anticipated, with greater emphasis placed on the domestic economy.

While most panelists see rates staying unchanged for the rest of the year, some panelists are penciling in a rate cut in the coming months. This is the case of Brian DePratto, an economist at TD Economics, who noted:

“Reading between the lines, nearly every positive note in today’s statement was balanced by a qualifier. For instance, wages and labour income are up, ‘yet consumption spending was unexpectedly soft in the quarter’. The Bank also seems to be getting ahead of potential criticisms of easing, noting that despite strong housing activity of late, ‘mortgage underwriting rules should help contain the buildup of vulnerabilities’. […] barring a significant surprise, we still expect an October rate cut.”

The next monetary policy meeting is scheduled for 30 October.

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