BoC: Rate hike delayed, not canceled - RBC CM
As expected, the Bank of Canada (BoC) left its monetary policy unchanged at today’s meeting. Josh Nye, Senior Economist at RBC, points out that the BoC maintain its tightening bias despite near-term growth wobbles.
“The big question heading into today’s meeting was how the Bank of Canada would react to three major developments in recent months: lower oil prices, tighter financial conditions, and slowing global growth. Governing Council took note of all three but it was oil prices that dominated the discussion.”
“Lower oil prices are expected to weigh on the Canadian economy to the tune of 1/2 percent of GDP by the end of 2020.”
“But while the energy sector slowdown is set to delay further interest rate hikes, the bank continues to think rates will have to rise to a neutral level “over time” to keep inflation on target.”
“We think recent deterioration in financial conditions and slowing global growth lend some downside risk to the outlook for those sectors. We’ll need to see non-energy activity holding up well in the coming months to pull the bank off the sidelines in Q2, as our forecast assumes.”