BoC: Steady interest rates again – RBC

Nathan Janzen, senior economist at the Royal Bank of Canada, points out that the Bank of Canada struck a more neutral tone yesterday and the key overnight rate was left unchanged at 1.75%.

Key Quotes

“The BoC remains concerned about the global backdrop and potential risks for the domestic economy. But today's statement referenced "nascent evidence that the global economy is stabilizing." On the domestic front, the central bank shares our own view that underlying details of the as-expected slowing in Q3 GDP were decidedly more positive than the headline alone and called out the stronger than expected rise in business investment.”

“Labour markets have been very strong, inflation has been locked right around the 2% target, and wage growth has strengthened into the end of the year. While growth headwinds remain, the bank is balancing these risks against those associated with re-inflating household credit growth (largely via recovery in housing markets) from levels that the BoC has argued are already worryingly high.”

“The global growth backdrop remains highly uncertain. Trade tensions between the US and China have eased somewhat but new US threats of tariffs on France and reinstatement of steel/aluminum tariffs on Brazil and Argentina over the last week has been yet another reminder that tensions, and threats to the global growth outlook, can come and go quickly and with little warning.”

“And limited slack in the economy means that there is simply more scope for downside than upside growth surprises going forward. Still, today's rate statement, and recent economic data flow, has at the very least made a near-term rate cut, like the one in Q1 2020 in our current base-case, look less likely.”