What the analysts say about the Bank of Canada’s rate decision

The Bank of Canada said Wednesday that some of the pressures facing the country’s economy have eased this season as it left its benchmark interest rate unchanged Wednesday.

Bank of Canada holds key rate of interest because it waits on Ottawa’s fiscal boost

The central bank takes a wait-and-see approach to the brand new federal government’s plans for multi-billion-dollar spending. Continue reading

The relatively optimistic outlook carries on exactly the same tone put down in January. In those days, optimism would be a more surprising avenue, as global markets were in the midst of a steep correction and concerns were being raised about growing risks of a world recession.

But Canada’s economy isn’t out of the woods just yet. Below, the Financial Post has compiled what analysts are saying concerning the bank’s latest rate announcement.

Announcement casts doubt on rate cuts this year

The market has steadily priced the likelihood of an additional BoC rate cut over the past seven weeks, and analysts are even more doubtful on further moves. The combination of firmer oil prices, much-improved non-resource exports, and also the dawning realization that, yes, the Fed actually will raise rates this year have all contributed to the modification in sentiment. We would ‘t be so quick to rule out the financial institution of Canada completely: GDP growth continues to be well below potential (at best it’ll rise 1-1/2% this season), unemployment is grinding higher (up 0.6 ppts in the past year), and the currency’s bounce has removed it being an obstacle to rate cuts. Fiscal stimulus from Ottawa is no miracle growth cure for the economy, and then any relapse in oil prices only will expose the actual soggy growth outlook. The scalding housing market in some cities will be a valid reason for the BoC to stay put, but they seem to have washed their collective hands on that front (“last type of defence”). Overall, while this Statement doesn’t shut the doorway on another cut, it does absolutely nothing to advance the reason. Doug Porter, chief economist, BMO Capital Markets

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Bank of Canada holds key rate of interest because it waits on Ottawa’s fiscal boostBank of Canada maintains interest rate: Browse the full statement

Bank seems unconcerned so far about loonie’s 9% rise against U.S. dollar this year

Perhaps the main one potential source of intrigue heading in to the meeting was when the Bank would express concern within the appreciation within the Canadian dollar. This turned out not to be the case, as the Bank noted that the currency had averaged close to levels assumed within the January MPR. We are therefore left to conclude the implied tightening in financial conditions due to the currency isn’t a major source of concern for the outlook for economic growth. 



At no more the day, we see the financial institution of Canada comfortably remaining on the sidelines because of both a conservative expectation for near-term growth and the prospect of fiscal stimulus in the future. Economic growth will remain sluggish and we do share the Bank’s view that the risk to the outlook remains tilted to the downside. However, for that Bank to respond we would need to see among those risks realized. David Tulk, head of global macro strategy, TD Securities



Bank waits to determine just how much federal government will expend on stimulus

Overall, we still expect the economy to struggle badly this season, managing only half the fir.4% GDP growth forecast by the Bank. If the Federal stimulus plan proves too timid once we suspect, then the Bank may have no other choice but to cut rates soon thereafter. Accordingly, we still think that a rate cut the following month, to 0.25%, is a distinct possibility. David Madani, senior Canada economist, Capital Economics

Improvement in non-energy exports has bank sounding more upbeat

Overall, the statement is very like the one out of January, but the tone is a little more positive, with the BoC acknowledging the improvement in non-energy exports. Moreover, today’s decision continues to claim that the BoC is patiently awaiting the announcement from the fiscal stimulus. As such, the BoC asserted it has yet to incorporate the outcome of the fiscal stimulus in its economic projection. Due to the Governor’s comments at the press conference in January, we think the BoC believes that the size of the fiscal package is going to be large enough to permit the central bank to remain around the sidelines. As such, we feel the BoC will remain on hold for the rest of the entire year. Charles St-Arnaud, economist, Nomura Securities