Published: Sun, March 10, 2019
Money | By Ralph Mccoy

'A more dovish central bank': Bank of Canada leaves interest rates unchanged

'A more dovish central bank': Bank of Canada leaves interest rates unchanged

"It's primarily being driven off of the fact that we had weak Canadian GDP numbers come out and that was followed by the Bank of Canada using statements such as the path of future rates is now more uncertain", he said in an interview.

Not only has the slowdown been deeper than expected, but Statistics Canada's downward revisions to growth in the first half of a year ago suggest there may have been more excess capacity going into the slump than previously thought. The statement also indicated that the Bank is likely to mark down its 2019 forecast: "it appears that the economy will be weaker in the first half of 2019 than the Bank projected in January".

"Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook".

"Both exports and business investment also fell short of expectations".

The central bank's trend-setting interest rate is staying at 1.75 per cent for a third-straight policy announcement - a stretch that comes after governor Stephen Poloz introduced five rate hikes between mid-2017 and last fall. Further, the greater uncertainty and data dependence highlighted by the Bank of Canada could provide a tailwind for the Dollars moving forward as the language is priced in to the market's expectation of future rate hikes.

"Against this backdrop, I'd expect the hurdle rate to resume rate hikes to be quite high", said Sophia Drossos, a former economist at the U.S. Federal Reserve and Morgan Stanley, who now runs her own advisory firm in NY.

She repeated a line from the central bank's statement Wednesday that said there is now "increased uncertainty" about the timing of future rate hikes.

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The central bank's dovish tilt came after fourth-quarter data released last week showed the economy practically ground to a halt.

Nevertheless, the bank said it appears the economy will be weaker in the first half of 2019 than anticipated in January when it published its most recent set of quarterly projections.

The Canadian dollar decreased by almost half a cent.

When asked if the central bank was anxious those rules would push unqualified buyers to seek loans on the secondary mortgage market, Patterson said it was to be watched and would be a concern "if that part of the market becomes too large". The Bank expects CPI inflation to be slightly below the 2 per cent target through most of 2019, reflecting the impact of temporary factors, including the drag from lower energy prices and a wider output gap. The bank, however, noted that global economic prospects would improve if ongoing trade conflicts are resolved.

The price of West Texas Intermediate fell slightly as US fuel stockpiles dropped during the week to offset an increase of 7.1 million barrels of crude inventories.

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