Poloz inverts Canada's yield curve by removing rate-hike bias

25 Avril, 2019, 02:38 | Auteur: Auguste Feret
  • Bank of Canada holds key interest rate at 1.75%, downgrades economic forecast

"Growth during the first half of 2019 is now expected to be slower than was anticipated in January", which is why the bank is keeping its rate low, to help stimulate the economy, it said.

Canada's central bank held its benchmark interest rates steady at 1.75 per cent as expected but removed wording about the need for future rate hikes and lowered its growth forecast for 2019 to 1.2 per cent from 1.7 per cent.

The decision left the trend-setting rate at a still-stimulative 1.75 per cent for a fourth-straight announcement - a pause that followed governor Stephen Poloz's stretch of five hikes between mid-2017 and last fall. It also laid out a more dour growth forecast for this year than economists are expecting.

"Given all of these developments, governing council judges that an accommodative policy interest rate continues to be warranted", the bank said.

The central bank's March rate announcement said there was "increased uncertainty about the timing of future rate increases".

Earlier this month he said it was unclear how long the slowdown would last.

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In January, the bank was expecting Canada's economy to grow by 1.7 per cent this year.

The overall inflation rate, meanwhile, is expected to dip in the third quarter before recovering to around 2 percent, the midpoint of the central bank's 1 percent to 3 percent target range. Today's statement went one step further, dropping the hawkish bias in favor of a neutral outlook: "We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive".

The price of oil, one of Canada's major exports, pulled back from a six-month high as data showing rising US stocks countered fears of tight supply resulting from OPEC output cuts and USA sanctions on Venezuela and Iran.

Poloz has stressed the bank's dependence on data, and the statement Wednesday said it will pay close attention to the evolution of household spending, oil markets and global trade policy.

Chances of an interest rate cut by December rose to almost 70 per cent from 57 per cent before the policy announcement, data from the overnight index swaps market showed.

Looking ahead, the bank projects a gradual expansion of investment outside the oil and gas sector before it turns into solid growth in the second half of 2019.

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