Bank of Canada leaves key interest rate unchanged at 1.75%

Roman Schwartz
March 10, 2019

However, in an accompanying statement, the bank expressed considerable doubts about the timing of future increases and warned the first half of 2019 is on track to post weaker-than-expected results.

A dismal gross domestic product report "just reinforces the need for the bank to stop talking about raising rates and continue to talk about waiting for the data to tell us where we are", Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a telephone interview.

"With increased uncertainty about the timing of future rate increases, governing council will be watching closely developments in household spending, oil markets, and global trade policy".

"Although the bank still expects its next move to be a rate rise, we think that it will end up cutting rates by the end of the year", Mr Brown said.

The loonie took a dive Wednesday morning after the Bank of Canada talked about "uncertainty" over the future path of interest rates in Canada.

The Canadian dollar fell in the moments after the announcement. Instead, growth slowed to 0.4 per cent.

To be sure, Statistics Canada reported late in February that non-residential investment will rise 2.5 per cent in 2019, according to a survey of companies, compared with increases of 2.5 per cent past year and 4.3 per cent in 2017. The weak end to 2018 and soft momentum heading into 2019 clearly has the Bank of Canada anxious about the health of the Canadian economy.

Heading into the decision Wednesday, the Bank of Canada was widely expected to leave the key interest rate untouched.

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But it acknowledged the slowdown ended up being "sharper and more broadly based".

Many analysts don't expect the central bank to raise the benchmark until at least late 2019 - and some have started to suggest a rate cut could arrive before the next increase.

In the United States, the Federal Reserve has made sure that everyone knows that it is no longer inclined to raise interest rates, even though the economy grew at an annual rate of nearly three per cent in the fourth quarter.

Looking ahead, however, Patterson said the Bank of Canada is optimistic that economic growth will build new momentum in the second half of 2019, thanks in large part to the still-strong employment conditions and improving wages.

That's also when we'll see where interest rates are headed this year.

The central bank's next policy decision is scheduled for April 24 when it will also update its economic outlook in its monetary policy report.

The central bank said the current slowdown in the world economy has been "more pronounced" than it anticipated in its January forecast. It is hard to disentangle these confidence effects from other adverse factors, but it is clear that global economic prospects would be buoyed by the resolution of trade conflicts.

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