Canada central bank maintains key lending rate

  • Canada central bank maintains key lending rate

Canada central bank maintains key lending rate

The bank is expecting above-potential growth of 2.1 per cent in 2020. Markets are less sanguine, focusing more on the deteriorating global economic outlook and trade risks between the USA and China.

That was before talk of a slowing global economy, stocks in bear market territory, and collapsing oil prices. That's lower than the 1.9 per cent projected in its October outlook. These worries among market participants have also been reflected in bond and equity markets.

The bank estimated the oil slump, which began last summer and has seen prices recover in recent weeks, will reduce the level of Canada's gross domestic product by 0.5 percent by the end of 2020.

Nevertheless, the Canadian economy that has been performing well overall, the bank said.

The economy has been growing at a good pace, creating new jobs and pushing unemployment to a 40-year low.

The bank said it expects exports and non-energy investment to grow solidly, supported by foreign demand, the newly renegotiated free trade agreement with the USA and Mexico, the lower Canadian dollar, and federal tax measures targeted at investment.

Consumption and housing investment have also been weaker than expected as lending rates increased.

The bank addressed the issue Wednesday by saying national wage-growth figures have been weighed down by weaker numbers in the oil-producing provinces. The Bank will continue to monitor these adjustments.

The central bank revised down its expectations for the sector, which it now expects to shrink in 2019 after previously forecasting a small gain. Home sales in the Toronto region fell 16 per cent in 2018, while in Vancouver they plunged 32 per cent. As expected, CPI inflation eased to 1.7% in November, due to lower gasoline prices.

Inflation is expected to dip temporarily below the central bank's guiding 2 percent target for much of this year, largely because of the effect of lower energy prices.

The central bank's five interest rate increases since 2017, as well as a variety of changes to mortgage rules from regulators and different levels of government, are taking a surprisingly large toll on housing.

The timing of its next rate increase will depend on several factors, the bank said, and there will be a particular focus on developments in the oil markets, the Canadian housing sector and global trade policy.

This article is for general information purposes only.

"Any sign of optimism could trigger the classic sell-on-rumour, buy-on-news reaction in the Canadian dollar", says Schamotta. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Any hint of more hikes could put traders in a buying mood and push the Canadian dollar higher. You could lose all of your deposited funds.

With more than 20 years' trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa.

"The pendulum in the market often swings more than the underlying facts on the ground", Avery Shenfeld, chief economist at CIBC World Markets, said by phone.