As expected, the Bank of Canada’s benchmark rate remained unchanged at 1.75% this month.
According to Scotiabank vice president of capital markets, Derek Holt, “the market went too far in terms of pricing out rate hikes further on.” The Central Bank raised it’s key rate 5 times since mid-2017 and anticipated being able to continue their upward trend in order to keep economic growth on target. But the continuing global trade uncertainty and slow economic growth has put things to a standstill since October of last year. Now the Bank has announced its intention to “wait and see.”
The current global trade outlook doesn’t look good for Canada, a major commodities exporter. The prospect of a US-China trade agreement gave rise to the hope that conflict between the two countries would ease, but until a deal is finalised the Bank said that tension will “[weigh] on global demand and commodity prices.”
Statistics Canada trade data shows that export volumes fell in 8 out of 11 sectors. Growth in the US is also slowing down and expected to reach “a more sustainable pace” this year. Economic growth on a global scale is “forecast to slow to 3.4% in 2019 from 3.7% in 2018” said the Bank.
At home, the Central Bank is most concerned with the energy sector and the housing market.
“While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta,” the Bank announced, “investment in Canada’s oil sector is projected to weaken further.” These cuts have hurt economic growth and will continue to do so.
In the Bank’s words, “investment in Canada’s oil sector is projected to weaken further… The oil crisis took a major dive at the end of last year when Canada’s trade deficit more than doubled from $900 million in October to $2.1 billion in November.” Canada is in trouble!
“Consumption spending and housing investment have been weaker than expected,” the Bank said. “Household spending will be dampened further by slow growth in oil-producing provinces.” Housing prices are not expected to make much of a comeback this year, and financial markets remain unpredictable.
More and more Canadians are seeking relief from debt, another indication of a weakening economy.
One glimmer of hope has shone through recently, the Canadian dollar has already hit its strongest intraday level since December at 1.3180 to the USD and is expected to continue to rally in this year.
The Bank of Canada announces it’s overnight rate in January, March, April, May, July, September, October, and December. Although the Bank insists that further interest rate hikes will be necessary, hardly anyone believes they will follow through any time soon.
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