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At today’s meeting, the Bank of Canada left its key interest rate unchanged. According to National Bank of Canada’s analysts, Krishen Rangasamy and Paul-André Pinsonnault, the BoC sees increased uncertainty about the timing of policy normalization.  

Key Quotes:

“The Bank of Canada left the overnight rate unchanged at 1.75% today. The central bank acknowledged the Canadian economy had underperformed relative to expectations as the Q4 slowdown was “sharper and more broadly based”. The BoC added that “it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January”.  

“In late February, Governor Poloz mentioned in a speech that the path back to the neutral rate was highly uncertain. In today’s statement, the Bank of Canada reinforced that message by saying “it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook”. The output gap is larger than expected and hence inflation remains under wraps ─ the average of the three core CPI measures stood at 1.9% on a year-on-year basis in January for a third month in a row. That, coupled with weakness in domestic demand and uncertainties with regards to trade, suggests the central bank can afford to be patient.”

“We expect the BoC to wait until at least the second half of the year, when the uncertainty about the economic outlook may dissipate enough as to allow it to contemplate resuming monetary policy normalization.”