Bank of Canada keeps rate steady, but gives itself room to pivot

by Raymond Kar, July 11, 2019

The Bank of Canada held it’s benchmark rate unchanged at 1.75%.   Strong hiring, wage gains, and low interest rates has sustained domestic demand.   However, for economic growth to be optimal, companies need to expand in Canada to meet export demand.  Trumps trade tariffs and the constant threat of new ones are killing factory production and business investment in Canada and around the world.  Policymakers cut their forecast for economic growth in 2020 to 1.9 per cent from 2.1 per cent, a decent-but-unspectacular pace that won’t generate much inflation pressure.  Thus holding out the possibility of lower rates if need be.  Market watchers had this take on the Bank’s announcement.

Sal Guatieri, BMO

“We still see Bank of Canada on hold for next couple of years. There’s probably a little greater chance of a rate cut if the Fed does see the need to cut rates more rapidly. We are anticipating a couple of rate cuts from the Fed. That could put upward pressure on the Canadian dollar the Bank of Canada might need to address by cutting rates.”

Andrew Kelvin, TD Securities

“We still had the upgrade to 2019 but I think that was a pretty conservative upgrade given what we’ve seen in the data. So clearly the growing wave of negative sentiment around the globe is impacting the Bank of Canada’s view on the outlook. They remain very concerned with trade tensions and they are going to take a cautious approach going forward. We continue to look for the Bank of Canada to cut interest rates in January 2020.”

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