{"id":9347,"date":"2018-06-03T11:11:27","date_gmt":"2018-06-03T18:11:27","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=9347"},"modified":"2018-06-01T09:34:46","modified_gmt":"2018-06-01T16:34:46","slug":"bank-of-canada-keeps-key-interest-rate-target-on-hold-at-1-25","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2018\/06\/bank-of-canada-keeps-key-interest-rate-target-on-hold-at-1-25\/","title":{"rendered":"Bank of Canada Keeps Key Interest Rate Target on Hold at 1.25%"},"content":{"rendered":"<p style=\"text-align: justify;\">OTTAWA \u2014 The Bank of Canada kept its key interest rate target on hold Wednesday, but noted the Canadian economy was a little stronger than expected in the first quarter, raising expectations that rate hikes are coming later this year.<\/p>\n<p style=\"text-align: justify;\">The central bank held steady its target for the overnight rate \u2014 a key financial benchmark that influences the prime lending rates at the country\u2019s big banks \u2014 at 1.25%.<\/p>\n<p style=\"text-align: justify;\">However, economists said the Bank of Canada\u2019s decision to drop a reference to remaining \u201ccautious\u201d signalled a more hawkish tone and suggested that the next rate increase would be soon.<\/p>\n<p style=\"text-align: justify;\">\u201cAll told, the positives seem to outweigh the negatives,\u201d TD Bank senior economist Brian DePratto wrote in a note to clients.<\/p>\n<p style=\"text-align: justify;\">\u201cGone was the reference to \u2018caution\u2019 that typified the last few statements. Today\u2019s statement instead chose the term \u2018gradual\u2019 to describe the approach to policy adjustments.\u201d<\/p>\n<p style=\"text-align: justify;\">The loonie was up 0.74 of a US cent to average 77.54 cents US, thanks largely to the change in the bank\u2019s tone, said Allan Small, a senior investment adviser at HollisWealth.<\/p>\n<p style=\"text-align: justify;\">\u201cThey did not raise rates this go round, but they basically gave an indication or at least a hint that they still believe that they need to raise interest rates in the future to combat an economy that\u2019s heating up, to combat the fear of inflation.\u201d<\/p>\n<p style=\"text-align: justify;\">The Bank of Canada\u2019s next scheduled interest rate decision is set for July 11 when it will also update its outlook for the economy and inflation in its monetary policy report.<\/p>\n<p style=\"text-align: justify;\">In announcing its decision Wednesday, the central bank said exports were more robust than forecast as data on imports of machinery and equipment suggest continued recovery in investment, but also pointed to softer real estate activity into the second quarter as the market \u201ccontinues to adjust to new mortgage guidelines and higher borrowing rates.\u201d<\/p>\n<p style=\"text-align: justify;\">\u201cGoing forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018,\u201d it said.<\/p>\n<p style=\"text-align: justify;\">The Bank of Canada also said global economic activity remains broadly on track, but added that ongoing uncertainty about trade policies is dampening global business investment and stresses are developing in some emerging market economies.<\/p>\n<p style=\"text-align: justify;\">It noted that recent developments have reinforced its view that higher rates will be warranted to keep inflation near its target, but added that it will take a gradual approach and be guided by the economic data.<\/p>\n<p style=\"text-align: justify;\">\u201cIn particular, the bank will continue to assess the economy\u2019s sensitivity to interest rate movements and the evolution of economic capacity,\u201d it said.<\/p>\n<p style=\"text-align: justify;\">Alicia Macdonald, principal economist at the Conference Board of Canada, has been expecting since January that the Bank of Canada will raise its key interest rate in July.<\/p>\n<p style=\"text-align: justify;\">She said Wednesday that there\u2019s now a possibility the central bank may also increase the rate in September or October, but that will depend on what happens with the trade talks with the United States and Mexico.<\/p>\n<p style=\"text-align: justify;\">\u201cWe think there\u2019s reason to still think they might be cautious as they wait for these events to unfold,\u201d she said.<\/p>\n<p style=\"text-align: justify;\">Macdonald also said she\u2019ll be watching what happens with the housing market, which she said the Bank of Canada expects to rebound over the rest of this year.<\/p>\n<p style=\"text-align: justify;\">\u201cWe think that, yes, it won\u2019t be as bad going forward, but we do see the possibility for some continued softness in housing market activity over the next few months and that could weigh on future rate increases,\u201d she said.<\/p>\n<p style=\"text-align: justify;\">However, David Watt, HSBC\u2019s chief economist for Canada, said he expects the Bank of Canada to keep its key interest rate on hold for the rest of the year.<\/p>\n<p style=\"text-align: justify;\">\u201cIn our view, the Bank of Canada\u2019s hawkishness is premature,\u201d he wrote in a report.<\/p>\n<p style=\"text-align: justify;\">Watt cited moderate job growth, lacklustre non-energy export growth, ongoing trade policy uncertainty, subdued capital expenditures and signs households are being squeezed by past rate increases and high gasoline prices as reasons the central bank would keep its rate unchanged.<\/p>\n<p style=\"text-align: justify;\">The central bank\u2019s decision to keep its trend-setting rate on hold came as inflation sits above the two per cent midpoint of its target range of 1 to 3% and core inflation has crept past the 2% mark for the first time since 2012.<\/p>\n<p style=\"text-align: justify;\">It noted that inflation will likely be a bit higher in the near term than was forecast in its April monetary policy report due to recent increases in gasoline prices, but that it will look through the transitory impact of the fluctuations at the pump.<\/p>\n<p style=\"text-align: justify;\">The central bank has raised its key rate three times since last summer, increases that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other variable-rate loans.<\/p>\n<p><a href=\"http:\/\/nationalpost.com\/pmn\/news-pmn\/canada-news-pmn\/newsalert-bank-of-canada-holds-key-interest-rate-at-1-25-per-cent\" target=\"_blank\" rel=\"noopener\">Bank of Canada Keeps Key Interest Rate Target on Hold at 1.25%<\/a> by Craig Wong | National Post<\/p>\n","protected":false},"excerpt":{"rendered":"<p>OTTAWA \u2014 The Bank of Canada kept its key interest rate target on hold Wednesday, but noted the Canadian economy was a little stronger than expected in the first quarter, &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2018\/06\/bank-of-canada-keeps-key-interest-rate-target-on-hold-at-1-25\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-9347","post","type-post","status-publish","format-standard","hentry","category-mortgage"],"yoast_head":"<!-- This site is optimized with the 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