BoC keeps rates unchanged at 1.75% - cites risk to domestic and global growth

Published date: 09/01/2019

Today's BoC announcement has confirmed interest rates will remain on hold at 1.75%, which was widely expected and comes as little surprise.  The statement, however, outlines risks to global growth and cites trade tensions impacting on the global outlook for which they see 2019 slowing to 3.4% vs 3.7% in 2018.  They also highlight the solid growth in the US though note the pace of growth will return to a more sustainable pace.  

On the domestic front, the BoC also acknowledges that lower Oil prices combined with the pipeline issues contributing to rising domestic inventory (in Alberta) has had a negative impact on GDP and output, adding to their cautious tone going forward. 

However, they maintain that the economy is running close to capacity - a line which has been consistent on the recent series of statements, with the central banks also noting strong employment growth with unemployment at a 40yr low. Looking ahead, they expect to see exports and non-energy projects to continue to support the economy.  Even so, with the balance of risks, Canadian GDP for 2019 has been revised lower from 2.1% (in Oct) to 1.75.  

Core inflation remains clustered close to 2.0% and is less of a concern at this stage.  

In conclusion, the BoC still sees the need to raise rates over the medium term horizon, though the pace and size of increases are contingent on the data as and when received. 

We saw USD/CAD falling further and taking out the 1.3200 level, though this looks to have been part of a broader USD move, as there is little in the statement which points to any material prompt to buy the CAD any higher from levels reached recently.  We have seen a fall from 1.3660 highs, so the lows seen today represents a near 5 cent drop since the Xmas break, so is a touch oversold on short term metrics.  1.3154 is strong support lower down.


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