The Bank of Canada keeps its key rate to 1.75%

La Banque du Canada maintient son taux directeur à 1,75%

Photo: Adrian Wyld, The canadian Press
The Bank of Canada has issued a warning to Canadians, saying they should expect that the economic performance is less robust in the coming months.

The Bank of Canada decided to leave its key rate unchanged because of an economic slowdown more pronounced, which, according to it, leaves room for uncertainty as to the timing of future rate hikes.

It has also issued a warning to Canadians on Wednesday, arguing that they must expect the economic performance to be weaker over the next few months. According to the central bank, the effects of this slowdown should be observed during the first half of 2019 — a horizon that is longer compared to the previous forecast of its governor, Stephen Poloz.

For a third ad in a row, the Bank decided to leave its key rate to 1.75 %. Previously, Mr. Poloz had conducted five tightening monetary between mid-2017 and the last fall.

However, the publication last week of disappointing economic indicators appears to have changed the situation. A report from Statistics Canada demonstrated that the performance had been surprisingly low during the last three months of 2018. The economic growth was at its lowest level in two and a half years. “Given the mixed results that can be drawn from the data, it will take time to gauge the length of time during which the growth will remain below its potential level and the implications for the inflation outlook “, the Bank said, in its press release.

Many analysts have predicted that the Bank will wait until at least the end of 2019 before you introduce another rate increase. Some are even wondering if Mr. Poloz will go ahead with another monetary tightening this year and others wonder if the latter might opt for a different scenario that an increase in the interest rate. “The Bank of Canada has clearly indicated that it believed that the prospects for 2019 were less optimistic than a month ago,” said Frances Donald, head of macroeconomic strategy at Manulife asset Management. She added that it was important to take account of the global context, as the tone of several central banks, including the u.s. federal Reserve, has changed over the last two or three months.

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