BoC maintains overnight rate target at 1.75%

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Canada High Resolution Money Sign Concept © xtockimages /123RF Stock PhotosEarlier this week, the Bank of Canada announced it’s maintaining the target for the overnight rate at 1.75 per cent.

“As expected, the Bank of Canada kept the target rate unchanged at 1.75 per cent,” said Randall Malcolm, senior managing director at Sun Life Investment Management, in a statement. “The [Bank of Canada’s] statement surprised to the dovish side and dropped reference to future rate increases stating, ‘an accommodative policy interest rate continues to be warranted.’”

The Bank of Canada also projected that growth in the first half of 2019 is expected to be slower than initially projected in January. “Last year’s oil price decline and ongoing transportation constraints have curbed investment and exports in the energy sector,” noted a Bank of Canada press release. “Investment and exports outside the energy sector, meanwhile, have been negatively affected by trade policy uncertainty and the global slowdown. Weaker-than-anticipated housing and consumption also contributed to slower growth.”

Yet, the bank did say that growth is expected to pick up starting in the second quarter of the year.

“Housing activity is expected to stabilize given continued population gains, the fading effects of past housing policy changes and improved global financial conditions,” the bank said. “Consumption will be underpinned by strong growth in employment income. Outside of the oil and gas sector, investment will be supported by high rates of capacity utilization and exports will expand with strengthening global demand. Meanwhile, the contribution to growth from government spending has been revised down in light of Ontario’s new budget.”

The next scheduled date for the overnight rate target announcement is May 29. “The Bank of Canada is likely to keep rates on hold for the rest of the year, but a rate cut is unlikely in the near term unless the economy deteriorates further,” Randall said.

 

 

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