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Suite 204, Concord,
ON, L4K 2Z5

Phone:     905-761-7001
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9 January 2019

The Bank of Canada decided to keep its benchmark interest rate unchanged

On Wednesday, the central bank kept its key lending rate unchanged at 1.75%, even despite several economic difficulties.

As you know, the Bank of Canada has raised the rate five times since the summer of 2017, trying to keep inflation within the necessary limits of 1%-3%. The previous increase was in October.

This rate influences Canadians by increasing or reducing the rates borrowers and savers receive for their lines of credit, savings accounts, and variable-rate mortgages.

In addition to it, the BoC reduced its forecasts for the national economy in 2019. Following a 25% decline in oil prices since October, the Bank had to cut its expectations from 2.1% three months ago to the current 1.7%.

However, the Bank still plans to raise the rate again. "It’s necessary to lead the interest rate into a neutral range in order to achieve the inflation target," – the BoC noted.

According to the Bank’s Governor Poloz, the oil slowdown is significant, but it’s offset by strong numbers in other sectors.

"There are many other sectors, showing good results”, - he noted. In his opinion, the influence on GDP will be weaker than in 2014, as now the energy sector isn't as big a part of the national economy as earlier.

As a result, the Canadian dollar rose by a third of a cent to 75.73 cents US.

Just like most specialists, CIBC's Avery Shenfeld didn’t expect a rate hike this time, but he found the reason for that quite interesting.

"The Bank’s message suggests that it’s not perfectly sure when the next rate increase will happen”, - he noted.

Meanwhile, Stephen Brown from Capital Economics has a little bit different approach.

"The BoC still thinks rate increases are necessary, in spite of numerous factors affecting the economic situation”, - he says. “But if oil and real estate do drag the economy stronger than the Bank predicts, the chances of more rate hikes will be quite weak, and rate cuts will be more probable”.

According to TD Bank economist Brian DePratto, the central bank chose a cautious approach, but still aims at more increases.

"The changes of the previous few months has led the BoC to a cautious approach in terms of communications," - he said.

"Poloz still aims at rate hikes, but he doesn’t seem to hurry”.

 

 

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