Bank of Canada holds rates, frets about trade war damage

Lloyd Doyle
July 10, 2019

A staff analytical note released alongside the MPR on Wednesday shows how the more insulated from the harshest trade war scenarios than its neighbours.

Economists said earlier this week that Mr. Poloz's challenge would be to acknowledge the recent strength in the Canadian economy without fueling a spike in the Canadian dollar at a time when the global economy is showing signs of weakness. Stocks are also paring gains. Market pricing suggests investors aren't expecting Governor Stephen Poloz to match cuts by the Federal Reserve over the next year.

The Bank of Canada, however, will need to consider all the global uncertainty, she added.

In testimony today to US lawmakers, Federal Reserve Chairman Jerome Powell seems to have pushed the central bank closer to cutting interest rates this month by saying the economy continues to face downside risks including the U.S.

While the bank is warning against the impact of global trade skirmishes, it's also striking an optimistic tone about the Canadian economy.

The Canadian economy is rebounding at a stronger-than-expected pace from a weak run that almost ground the economy to a halt in late 2018 and early 2019. The BoC predicted that domestic growth would rebound in the second half of 2019 when it was faced with weak economic data in the early part of this year.It was correct.Canada has seen a succession of better-than-expected economic reports.The Manufacturing Purchasing Managers Index was better than expected, the Merchandise Trade balance posted a surplus, and job growth has been strong.In fact, the loss of 2,200 jobs in June was only the second monthly decline in ten months. Also, the central bank is widely expected to upgrade its domestic economic growth forecasts.

The Bank of Canada said it will continue to monitor data ahead of future decisions with a particular focus on developments in the energy sector and the effects of global trade tensions. The changes, including stricter inspections on Canadian goods by Chinese authorities, have come amid a bilateral diplomatic dispute.

The Bank of Canada said in a statement that the Canadian economy is returning to potential growth, according to recent data.

"There are a lot of downside risks to the forecast right now stemming from the global economic outlook and the bank will not ignore that in their statement". "Taken together, the degree of accommodation being provided by the current policy interest rate remains appropriate".

Broader global trade tensions are driving down commodity prices and are outweighing some positive developments, such as the removal of USA tariffs on Canadian steel and aluminum.

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent.

The bank warned that worldwide trade disputes are having a "material effect on the global economic outlook".

The fallout from higher tariffs between the US and China prompted the Bank of Canada to increase its estimate for how much the enduring clash over cross-border commerce is weighing on domestic and global exports as well as business investment relative to April.

The Canadian economy grew by 1.9 per cent in 2018 and 3 per cent in 2017.

Other reports by Iphone Fresh

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