Hike or hold? Bank of Canada expected to announce interest rate today

Lloyd Doyle
January 12, 2019

USDCAD pair is trading in red for sixth consecutive trading session today underpinned by increased risk on trading activity in global markets and bounce in crude oil price. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1.5 per cent, the central bank announced Wednesday.

Following the Bank of Canada's decision to keep the overnight rate target unchanged at 1.75%, Governor Stephen S. Poloz, and Senior Deputy Governor Carolyn A. Wilkins are delivering their remarks on the monetary policy outlook with key quotes, via Reuters, found below.

Before long, however, the central bank expects the economy to expand with renewed vigour. All of this comes at a time when Canadian households are carrying near-record debt levels relative to their disposable income. It last raised its rate in October and kept at 1.75 percent in December, and then again today.

Brown says that could surprise markets, which are not pricing in any more rate hikes in 2019. In the first half of 2018, household spending contributed roughly half of GDP growth. In the third quarter - the latest quarterly data available - it provided only about one-third of growth.

The bank is expecting above-potential growth of 2.1 per cent in 2020. Recent weakness in oil prices, meanwhile, could have spillover effects on the real estate markets in energy producing regions.

It said investment in Canada's oil and gas sector will fall 12 percent this year.

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.

"It's meant to inject a degree of ambiguity into the timing of this because obviously we're dealing with developments over the last few months that constitute a delay", Poloz said when pressed for an explanation.

"The global economic expansion continues to moderate, with growth forecast to slow to 3.4 per cent in 2019 from 3.7 per cent in 2018", the bank said in a press release. That trend looks likely to deepen as the impact of the oil decline ripples through the economy. It's more than a bit unnerving that the Bank of Canada's concerns about the housing sector have re-emerged.

On Wednesday, Bank of Canada Governor Stephen Poloz acknowledged that housing "is taking longer to stabilize than we expected", and added that given the excesses that had built up in the overheated Toronto and Vancouver markets, "it is always hard to judge where the market will stabilize once the froth has been removed". Extended housing uncertainty is yet another reason for consumers to run for cover.

While global over production and glut scenario played a major role in crude oil price decline, China-U.S. trade war also played a major role as it caused economic slowdown across globe and news of progress is viewed as positive sign for economic growth and crude oil demand in global markets. There is also new evidence suggesting the economy had more slack in recent years than previously thought. Unless this rotation kicks in, and soon, the Bank of Canada's downgraded projections for 2019 might prove optimistic.

Other reports by Iphone Fresh

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