Interest Rate in Canada

Canada - Interest Rate

Bank of Canada leaves rates unchanged in July amid elevated trade tensions

On 10 July, 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 reinforced by signs that growth picked up in the second quarter, supported by stronger oil output, and the Bank now sees Q2’s outturn as stronger than previously anticipated. Moreover, the economy should benefit in coming months from a robust labor market and a recovery in the housing sector. As a result, additional monetary stimulus was not warranted, despite ongoing trade tensions, which the BoC judged are having a “material effect on the global economic outlook”. Moreover, although inflation has risen in recent months, the Bank expected gasoline price movements to dampen price pressures in the months ahead. Under-control inflation thus gave the BoC the leeway to adopt a wait-and-see approach.

Going forward, the Bank gave no explicit guidance on the future direction of interest rate movements, although the tone of the communiqué was arguably slightly more dovish than at the prior meeting, with greater emphasis placed on the impact of the trade war. Most panelists see rates staying unchanged for the rest of the year.

According to Brian DePratto, an economist at TD Economics: “Today’s statement supports our view of a Bank of Canada that will stand pat as the domestic economy settles back to a roughly trend pace of growth. They would likely need to see more of the downside risks materialize in hard data to alter that position, with trade tensions topping the list of being a global catalyst.”

The Bank’s next monetary policy announcement is scheduled for 4 September.

FocusEconomics Consensus Forecast analysts see the target for the overnight rate ending 2019 at 1.73%. For 2020, analysts expect the target for the overnight rate to end the year at 1.79%.