Bank of Canada stays the course

Un­cer­tainty con­tin­ues to cloud stronger growth de­spite ro­bust consumer spend­ing

The Hamilton Spectator - - BUSINESS - ANDY BLATCHFORD

OTTAWA — Un­cer­tain­ties con­tinue to ob­scure the econ­omy’s stronger-than-ex­pected start to the year, the Bank of Canada said Wed­nes­day as it stuck with its trend­set­ting in­ter­est rate of 0.5 per cent.

In ex­plain­ing its de­ci­sion to hold the rate, the cen­tral bank once again high­lighted weak wage growth and the slow­ing pace of un­der­ly­ing in­fla­tion as ex­am­ples the econ­omy still has room for im­prove­ment.

For bal­ance, the bank’s sched­uled rate an­nounce­ment pointed to the sur­pris­ingly healthy start to the year in ar­eas such as em­ploy­ment, consumer spend­ing and the hous­ing markets. In Wed­nes­day’s state­ment, the bank added bet­ter busi­ness in­vest­ment num­bers to the list.

“Re­cent eco­nomic data have been en­cour­ag­ing,” the bank said.

“Consumer spend­ing and the hous­ing sec­tor con­tinue to be ro­bust on the back of an im­prov­ing labour mar­ket, and these are be­com­ing more broadly based across re­gions.”

The bank’s state­ment also said while re­cent gov­ern­ment pol­icy mea­sures on real es­tate have con­trib­uted to more sus­tain­able out­looks for house­hold debt, the rules have yet to have a sub­stan­tial cool­ing ef­fect on hot hous­ing markets.

Many econ­o­mists later noted that the tone of the bank’s brief, one-page state­ment was a lit­tle more up­beat than they had ex­pected.

“There is one clear mes­sage em­bed­ded in these 300 words and that is the Bank of Canada is not spooked ei­ther by hous­ing or by com­ing trade talks (with the U.S.),” said Frances Don­ald, se­nior econ­o­mist for Man­ulife As­set Man­age­ment.

“They are stay­ing the course, con­fi­dent in the growth path and not afraid of a re­cent de­cel­er­a­tion in in­fla­tion.”

Don­ald said the state­ment read a bit like a “place­holder” ahead of the Bank of Canada’s July rate de­ci­sion, which will be ac­com­pa­nied by its up­dated pro­jec­tions. She added that it was likely too dif­fi­cult for the bank to sum­ma­rize its nu­anced views in Wed­nes­day’s re­lease about the com­plex and de­vel­op­ing is­sues Canada has faced over the past cou­ple of months.

An­a­lysts had widely pre­dicted governor Stephen Poloz to keep the rate locked at its very low level for a 15th straight de­ci­sion, as sig­nif­i­cant un­knowns un­der­lined by the bank in the past con­tinue to swirl around the U.S. agenda on trade and tax­a­tion.

“The un­cer­tain­ties out­lined in the April (mon­e­tary pol­icy re­port) con­tinue to cloud the global and Cana­dian out­looks,” said the bank, with­out mak­ing any spe­cific men­tions this time about the po­ten­tial pol­icy path of Canada’s largest trad­ing part­ner.

Still, Jimmy Jean, a se­nior econ­o­mist for Desjardins, wrote in a re­search note to clients Wed­nes­day that the bank seemed sur­pris­ingly less con­cerned by de­vel­op­ments south of the bor­der.

“Poloz sounded re­as­sured by what he heard in his meet­ing with (U.S. Trea­sury Sec­re­tary Steven) Mnuchin at the G7 meet­ing,” Jean wrote.

“Per­haps he re­ceived some priv­i­leged in­for­ma­tion? In any event, the state­ment goes in the di­rec­tion of prompt­ing a re­think of the mon­e­tary pol­icy tra­jec­tory in Canada.”

The bank also pre­dicted that the “very strong growth” over the first three months of the year would moder­ate in the sec­ond quar­ter, even though it ex­pects the U.S. econ­omy to re­bound.


The Bank of Canada is stick­ing with a 0.5 per cent in­ter­est rate, sug­gest­ing the econ­omy still has room for im­prove­ment.

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