As expected by almost everyone, the Bank of Canada did not raise it’s benchmark interest rate this month, holding steady at 1.75%.
This decision reflects the continued global trade uncertainty and slower than anticipated economic growth. The Bank had previously continued raising its key rate (5 times since mid-2017) but has since halted any movement as of October of last year. While the Bank maintained that continued raised rates will be needed in order to keep economic growth on target it correspondingly announced the intention to “wait and see” before making any further changes. According to Derek Holt, vice president of capital markets at Scotiabank, “the market went too far in terms of pricing out rate hikes further on.”
Because Canada is a major exporter of commodities, our economy is seriously impacted by the global trade outlook. There was hope that trade tensions would ease with a US-China trade agreement, but until all the details are sorted out, conflict between the two export powerhouses will continue to “[weigh] on global demand and commodity prices.”
The latest trade data by Statistics Canada shows that export volumes fell in 8 out of 11 sectors. Growth in the US is expected to slow “to a more sustainable pace” this year. And the Bank stated that economic growth on a global scale is “forecast to slow to 3.4% in 2019 from 3.7% in 2018.”
On the home front, the Bank seems to have its eye on two markets in particular: energy and housing.
The Bank announced that “while price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada’s oil sector is projected to weaken further.” These cuts have already hurt economic growth and will continue to do so.
According to the Bank, “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,” announced the bank. Canada is in trouble!
“Consumption spending and housing investment have been weaker than expected,” the Bank said, and “[h]ousehold spending will be dampened further by slow growth in oil-producing provinces.” Financial markets have remained unpredictable and housing prices aren’t expected to bounce back by much this year.
On top of all this, more and more Canadians are seeking debt relief.
On a positive note, the Canadian dollar is expected to rally in 2019 and has already hit its strongest intraday level since December 4th at 1.3180 to the USD.
The Bank announces it’s overnight rate 8 times a year: January, March, April, May, July, September, October, December. Although the Bank insists that further interest hikes will be needed, speculators are more inclined to believe that it won’t happen.
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