Published: Thu, December 05, 2019
Markets | By Otis Pena

Bank of Canada Sees Enough Resilience to Chart ‘Own Course’

Bank of Canada Sees Enough Resilience to Chart ‘Own Course’

In making its rate decision in October, the Bank of Canada said it considered the possibility of cutting its key interest rate target as insurance against an economic slowdown, but decided it wasn't worth the cost.

Mr. Lane argued that despite the Canadian economy's close ties to the US, it often doesn't make sense for the Bank of Canada to match Fed rate moves - something that some critics have argued the Bank of Canada should be doing, to avoid too much divergence in the two countries' interest rates.

The Bank's October projection for global economic growth appears to be intact. The prolonged pause has left Canada with the highest policy rate among advanced economies.

The Canadian economy remains resilient despite the global uncertainty caused by the trade war between the United States and China, a senior Bank of Canada official said Thursday.

Canada's central bank offered no such guidance.

Stock markets tumbled from record highs as Trump opened new fronts in his trade wars, and then recovered somewhat on December 4 after Bloomberg News reported that the US and China were close to an agreement that would reduce some tariffs.

He said the Bank of Canada could move to cut interest rates if the economic picture deteriorates, but that will depend on the resilience in the economy.

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The Canadian dollar strengthened to a two-week high of C$1.3231 to the greenback, or 75.58 USA cents.

Inflation remains at the bank's 2% target and is expected to track close to that figure for the next two years. "On the domestic front, the central bank shares our own view that underlying details of the as-expected slowing in Q3 GDP were decidedly more positive than the headline alone and called out the stronger than expected rise in business investment".

To be sure, the flicker of hope that the global economy has taken a turn for the better could prove ephemeral.

The central bank, led by Governor Stephen Poloz, has been under pressure to rationalize its decision to hold off from easing while the Federal Reserve and other central banks have cut - an outlier status that has propped up the Canadian dollar. Consumer spending and housing activity are important sources of resilience in the Canadian economy, and the BoC indicated that it would continue to be on alert for any financial vulnerabilities that may affect the household sector. In September, the market was bracing for as many as three rate cuts.

"We were expecting investment to decline in the second half of this year, but instead we have seen solid growth".

The Bank of Canada held steady in its last meeting, too, the same day that the US Federal reserve chose to cut rates by 25 basis points. The Bank of Canada will resist adding extra incentives for as long as it can.

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