Home Central Banks BoC and BoJ - Wait (for the Fed) and See

BoC and BoJ – Wait (for the Fed) and See

Stockholm (Ekonamik) – At their October monthly meetings, the Bank of Canada (BoC) and the Bank of Japan (BoJ), the monetary authorities of their respective countries, decided to not change their policy interest rates.

BoC: Keep an Eye on Consumer Spending, Housing and the Fed

The BoC decided to keep its overnight, Bank and deposit rates at 1.75%, 2% and 1.5%, respectively. After reviewing economic conditions, the BoC explains that “all things considered, Governing Council judges it appropriate to maintain the current level of the overnight rate target.” Global tensions around trade continued to be at the forefront of the BoC’s considerations. “The Governing Council is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist.

In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.” However the central bank’s focus regarding any upcoming policy change will be on domestic economic variables. “In this context, it will pay close attention to the sources of resilience in the Canadian economy – notably consumer spending and housing activity – as well as to fiscal policy developments,” the BoC concluded.

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“The Bank of Canada appears to have abias to cut rates, and we may be just one more serious global trade accident away from them acting on that bias,” commented Douglas Porter, CFA, Chief Economist and Managing Director at BMO Capital Markets. “It’s pretty safe to conclude that if the Fed feels the need to cut again after today, the Bank will be doing so as well.”

BoJ Ramps Up Rate Cut Forward Guidance

At its October meeting, the BoJ decided to keep its policy rate at -0.1%. However, the Japanese central bank added some new language to its press release signalling its determination to lower rates further in the future if conditions required it.

“As for the policy rates, the Bank expects short- and long-term interest rates to remain at
their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost.”

Back in September, the BoJ had already added further dovish language, noting that “in a situation where downside risks to economic activity and prices, mainly regarding developments in overseas economies, are significant, the Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost.”

The BoJ’s concern with the momentum of the Japanese economy only increased in the intervening month and it dedicated a whole new three pages to discussing the output gap, the inflation outlook and oil prices in October. “the Bank judged that, although there had been no further increase in the possibility that the momentum toward achieving the price stability target would be lost, it was necessary to continue to pay close attention to the possibility,” the BoJ concluded. If the global economy slows down, the BoJ might just cut rates.

Image by David Mark from Pixabay

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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