Interest Rate in Canada
Canada - Interest Rate
Bank of Canada leaves rates unchanged, questioning the Bank’s estimates of neutrality
On 6 March, 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 a sharp slowdown in economic growth and subdued inflation, which was 0.5 percentage points below the 2.0% target in January due to the sharp fall in oil prices. According to the Bank, inflation will likely remain below target for much of 2019, as temporary factors such as lower energy prices and a widening of the output gap are expected to drag on prices. Moreover, the weakening global growth backdrop, mainly driven by trade headwinds, also influenced the Bank’s decision.
Going forward, the Bank all but abandoned plans for further rate hikes in the first half of this year as depressed economic activity and a battered energy sector has muted inflationary pressures. The BoC will likely reassess the stimulating effect of the current target rate on the economy and prices over the coming months. That being said, although the BoC was increasingly dovish, the language used did not entirely surrender raising rates. Specifically, the emphasis on the “increased uncertainty about the timing of future rate increases” suggests the BoC still sees room to raise rates at some point in 2019, and will continue to monitor growth in the first half of this year along with developments in household spending, oil markets and global trade policy.
Commenting on the BoC’s decision, Brian DePratto, senior economist at TD Economics, noted:
“Near-term economic softness, elevated uncertainty, the clear near-term bias to holding rates, and the likelihood that the neutral interest rate is below the Bank of Canada's estimates all point in the same direction. Unless we see a robust growth recovery mid-year (with that hurdle rising by the day) further rate hikes in 2019 are all but off the table.”
The Bank’s next monetary policy announcement is scheduled for 24 April.
Canada Interest Rate Forecast
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 2.11%. For 2020, analysts expect the rate to end the year at 2.18%.
Canada - Interest Rate Data
|Policy Interest Rate (%)||1.00||1.00||0.50||0.50||1.00|
5 years of economic forecasts for more than 30 economic indicators.
Canada Interest Rate Chart
Source: Bank of Canada.
|Bond Yield||1.76||1.00 %||Mar 08|
|Exchange Rate||1.34||0.15 %||Mar 11|
|Stock Market||16,106||0.23 %||Mar 11|
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