Bank of Canada holds rates but cuts growth forecast

Marco Green
January 27, 2020

The central bank - which has kept rates unchanged since October 2018 - said that while the economy has been resilient, recent economic data has been mixed, and noted "unexpectedly soft" indicators of consumer confidence and spending, and weaker business investment. "Obviously it is - it is open", Bank of Canada governor Stephen Poloz told a news conference.

In doing so it said while the global economy shows signs of stabilisation along with some positive trade developments, "there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences".

"But it hinges on how the data evolve from here because ... we have a strong belief that this will prove temporary, but temporary could be longer or shorter", added Poloz, who later noted rates were "still really low".

However, Porter said he believes that growth will bounce back more than the central bank is expecting. Many other central banks around the world had already lowered their interest rates.

Experts and the parliamentary budget officer have suggested the government spending will be more constrained because of deeper-than-planned deficits this fiscal year and next. Is the market signaling that a rate cut is needed to resuscitate economic growth?

While rising inflation eats into household spending power, the latest news is likely to be welcome news for the Reserve Bank, which is tasked both with controlling inflation and maximising sustainable employment.

The bank's governor Stephen Poloz said indicators of the Canadian economy have turned decidedly mixed, noting that vehicle sales, retail sales more generally, consumer confidence and job growth all softened at the end of past year while third-quarter investment spending was strong.

The bank said it would be watching closely to see if the recent slowdown in growth was more persistent than forecast.

For Canada, the Bank forecasts real GDP growth of 1.6% for 2020, the same as in 2019.

The Reserve Bank forecast a quarterly increase of 0.2 per cent in its November monetary policy statement, which would have taken the annual rate to 1.6 per cent. It also is the first statement since the USA and China agreed to ease tariffs.

"Sharp escalations of Middle East tensions could have a significant effect on the economy", the bank said and added that it assumes that this risk will not materialize.

Other reports by Click Lancashire

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