Stockholm (Ekonamik) – According to a press release from the Bank of Canada (BoC), the Canadian monetary policy authority has decided to hold rates at 1.75% at its May policy meeting.
According to Douglas Porter, CFA and Chief Economist at BMO Capital Markets, “it seems like the Bank has settled in for a long pause (and it has already been seven months since the last BoC rate hike).” Regarding possible interest rate changes he noted that “the bar is very high for a move in either direction.”
The central bank noted that “the recent escalation of trade conflicts is heightening uncertainty about economic prospects. In addition, trade restrictions introduced by China are having direct effects on Canadian exports.”
“Overall, recent data have reinforced the Governing Council’s view that the slowdown in late 2018 and early 2019 was temporary, although global trade risks have increased. In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate. In taking future policy decisions, Governing Council will remain data dependent and especially attentive to developments in household spending, oil markets and the global trade environment,” concluded the BoC announcement.
Later in the week, the Chief Economist also noted that “Canadian Q1 GDP came in a bit on the light side of expectations.” According to Statistics Canada, “expressed at an annualized rate, real GDP increased 0.4% in the first quarter. In comparison, real GDP in the United States grew 3.2%”.
According to the IMF’s April 2019 World Economic Outlook forecast update, Canada is expected to grow by 1.5% in 2019 and 1.9% in 2020, on average. The OECD’s May Economic Outlook for Canada is more bearish for 2019, putting the growth for the country at 1.27%, rebounding to 1.99% in 2020. “House price appreciation has slowed and even reversed in some locations, partly in response to macro-prudential and tax measures, reducing wealth gains and the associated boost to private consumption, but prices and household debt remain high and affordability poor,” says the report. “The major risks to the economic outlook are greater trade restrictions, notably in the United States, and a housing market correction,” warns the OECD.
Picture courtesy of BoC
