BoC: Overnight rate stays at 0.5% - RBC Economics

In a brief 313 word statement, the Bank of Canada validated its decision to maintain the overnight rate at 0.5% citing the as-expected strengthening in the global economy and evolution of the “dynamics of growth” in Canada as noted by the Dawn Desjardins, Deputy Chief Economist at RBC Economics.

Key Quotes

“In statement, the Bank contrasted developments in Canada relative to the US with the US economy operating “near full capacity” while Canada’s economy continues to have “a significant amount of economic slack”. Unlike in past statements, the Bank refrained from making a statement regarding the risks to the inflation outlook perhaps in part due to the elevated level of uncertainty about the direction of US fiscal and trade policy under the new Administration. The Bank’s only reference to the US election was to point to the sharp rise in global bond yields that occurred since November 8 as markets priced in expectations that the new government will implement a fiscal stimulus plan that will support stronger economic growth. Against this backdrop, yields in other global bond markets, including Canada, rose.”

“On the domestic front, the Bank acknowledged the strong rebound in the third quarter and in line with its October forecast anticipates that the pace of growth will moderate in the current quarter. The statement rehashed what happened in the third quarter but provided no commentary about recent developments.”

“To be sure, the risks to the outlook are elevated given developments outside Canada’s borders however they cut both ways with the prospect of a stimulus–induced strengthening in US growth opening the door for increased demand for Canadian exports facing off with concerns about rising protectionist policies clipping any upside.”

“Our forecast assumes that the US economy will grow at a firmer pace in 2017 and that any action on changing trade policies that would affect Canada will be slow-moving, if they occur at all. For Canada, this is likely to translate into a firmer year for growth in 2017 and will likely result in the Bank maintaining the overnight rate at 0.5% throughout the year.”