Bank of Canada to announce interest rate today

Marco Green
Апреля 19, 2018

While the Canadian dollar tends to strengthen around Bank of Canada interest rate decisions (as the BoC is now hiking rates), this isn't the case today.

The S&P/TSX Composite Index ticked upward on Wednesday after the Bank of Canada chose to leave interest rates steady at 1.25 percent.

Looking at the Bank of Canada's rate hike decision, most analysts are forecasting that the Bank will remain on hold.

"Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target", it said. Inflation is also running close to its ideal target and wage growth has strengthened with a tightening labour force. Continued gains in business investment should build additional capacity in those sectors and in the economy more generally.

In the fourth quarter of 2017, U.S. GDP growth slowed to 2.5% on a year-over-year basis and while that's still considered a fairly healthy number nowadays, that GDP rise was essentially financed by eye-watering increases in student loan and credit card debt, pushing both to record levels. The unspoken message was that the central bank could live with inflation above the mid-point for a while, too, without feeling compelled to raise interest rates sooner, or faster.

Thus, the central bank now sees the economy as having almost, but not quite reached its potential, rather than being at or slightly above it at the end of past year.

Inflation has been trending higher in Canada for about a year now.

The bank said it expects to hike interest rates gradually. Inflation is expected to be modestly higher than forecast in the bank's last monetary policy report from January, returning to the central bank's 2% target for the rest of the projection horizon.

Poloz reiterated Wednesday the bank would remain cautious when it comes to future increases.

The Bank of Canada's next scheduled announcement is set for May 30.

We are experiencing headwinds from rising trade uncertainty, three recent policy-rate hikes, a lofty Loonie and the sixth round of mortgage-rule changes, to name a few.

The BoC acknowledges potential risks to global expansion from escalating trade tensions between the US and China, and it also cites NAFTA uncertainty.

It laid out estimates on the growth impacts on Canada due to tax reforms in the United States, which are expected to lure more investment south of the border. The bank projects that Canada's GDP will be 0.3 per cent lower by the end of 2020 due to the negative impacts on exports. In fact, headline inflation is forecast to rise to 2.5% this Friday while all of the BoC's so called "core" measures of inflation are now either at 2% or are very close to it.

Across the Pond, there are no material stats scheduled for release, which leaves the Dollar in the hands of FOMC voting member Dudley and the Oval Office through the day, the markets having plenty to consider, including monetary policy, the U.S economy, investigations into the U.S administration, Trump in the Middle East, a possible trade war with China and now there's also Russian Federation to consider.

The stats for March are predicted to show rising annual sales activity compared to March 2017, but slower monthly sales growth compared to February 2018. The bank had been anticipating such moderation. It revised up its gauge of potential output growth, which gives the economy more room to grow without inflation pressures creeping up.

BOC policymakers aren't expected to adjust rates from their current 1.25% level, but hints that rate hikes are likely in 2018 could still trigger a CAD/GBP exchange rate rally. In January, the central bank had forecast potential growth for the next two years to average 1.6 percent.

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