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At today’s meeting, the Bank of Canada left the key interest rate unchanged as expected at 1.75% today. Krishen Rangasamy and Paul-André Pinsonnault, analysts at National Bank of Canada, point out that their own growth forecast are now, after today’s BoC downgrades, more optimistic. They continue to call for the central bank to extend its pause through 2019.

Key Quotes:

“In the Monetary Policy Report (MPR), the BoC lowered its 2019 Canadian GDP growth forecast by half a percentage point from 1.7% to 1.2%, while leaving 2020 unchanged at 2.1%. The BoC presented its 2021 forecast for the first time, showing a 2.0% growth rate in that year. Growth in the first quarter of 2019 is estimated at just 0.3% annualized, followed by 1.3% in Q2. Downgrades to 2019 (compared to January’s MPR) were largely due to housing and business investment. Forecasts of inflation were raised to reflect higher oil prices.”  

“While the no-change decision was widely expected, the downgrade to the BoC’s 2019 GDP growth forecast for Canada was much larger than anticipated. The BoC’s 1.2% forecast for 2019 growth is now well below consensus which is roughly 1.5%. The tone of the statement was more dovish than last March. Gone is the reference to “the timing of future rate increases”.  

“The central bank opted to drop its tightening bias, saying instead that it will monitor incoming data to gauge the extent to which factors weighing on growth and inflation are dissipating, in light of which it will evaluate the appropriate degree of monetary policy accommodation. In other words, the BoC opened the door to the possibility of rate cuts should the second half of the year also disappoint. Our own Canadian growth forecast, like consensus, is more optimistic than the BoC’s. As such, we continue to call for the central bank to extend its pause through 2019.”