Bank Of Canada Holds Rates, Trends Downward | Macro Minutes

  • Thursday, May 26, 2016

After announcing Wednesday it would hold interest rates at 0.50%, the Bank of Canada’s (BOC) sentiment trend was hawkish…but less so than in the past several months.

Current economic stressors seem to have caused policymakers to dial back the optimistic stance they held earlier this year. Due to these circumstances, we expect the bank to continue to hold rates until conditions stabilize.

5.26.16 Prattle Infographic_BOC

 

There are several economic causes of BOC policymakers’ dovish sentiment—most notably the wildfires in Alberta that have crippled the country’s oil production. As expressed in the bank’s official statement, “fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter.” This is a significant decrease to the 1% growth for the quarter projected by the bank in its April forecast.

Despite this drop in economic output, the bank has reason to remain slightly hawkish. Canadian stocks hit a 9-month high this week, and a weakening currency is expected to attract foreign investment and boost the economy. The statement asserted that, “the economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins.”

The bottom line: we expect to see more hawkish sentiment (just less than earlier this year) and steady interest rates from the BOC in the coming months as the Canadian economy slowly recovers.

The Prattle Team

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