Search ForexCrunch

Today, the Bank of Canada kept its interest rates unchanged as expected. Avery Shenfeld, analysts at CIBC, points out that in the face of broad-based disappointments in recent economic growth both at home and abroad, the BoC had little choice but to water down its warnings of higher interest rates ahead.  

Key Quotes:  

“The central bankers only acknowledged that the “timing of future rate increases” was now increasingly uncertain and that it would “take time to gauge the persistence” of the slower pace to growth that has now been so evident in the data. A full waving of the white flag on its early hawkish view would have seen the Bank discuss the “timing and direction of future rate changes”, and Governor Poloz was at this point not willing to take that larger step.

“While the Bank of Canada was expecting only 0.8% Q1 growth in its last forecast, which looks reasonable, it might be reconsidering the pace at which growth accelerates in Q2, as it warned of a weaker first half forecast for 2019. That implies that this pause on rates will extend at least into mid-year, but doesn’t yet rule out a second half hike if we get a subsequent pick-up. For that, we’ll need to see the Bank of Canada also do an overdue rethink on how stimulative current rates really are.”

“Short term yields ticked down after the statement and the Canadian dollar weakened. But having fully priced out any chance of a rate hike, markets would have to start pricing in material odds of a rate cut this year rate to extend that move. We do think Q1 will be soft, but look for enough of a pick-up in Q2 to put upward pressure on short term yields from these levels.”