Highlights of the Bank of Canada interest rate decision and statement
- Prior 1.75%
- No change was entirely expected
- The slowdown in the global economy has been more pronounced and widespread than forecast
- Trade tensions and uncertainty are weighing heavily on confidence and economic activity
- Slowdown in the fourth quarter was sharper and more broadly based
- Says both exports and business investment also fell short of expectations in Q4
- it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January
Key line in the prior BOC statement was: "Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target."
That was changed to: "Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range. Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook. With increased uncertainty about the timing of future rate increases, Governing Council will be watching closely developments in household spending, oil markets, and global trade policy."
So the explicit hiking bias is gone but there is still an implicit hiking bias, albeit a small one. Most observers thought the statement would keep the explicit hiking bias, but it's gone and that's dovish. USD/CAD is up to 1.3433 from 1.3382 in a flash.
There was a lot of optimism in the BOC from Sept-January but it's all been abandoned in this statement.
Here's a shorter BOC: We were wrong about growth. Also about exports. And business investment. Our rate hike bias was wrong and we don't know what's going on with consumers. We're going back to the drawing board and evaluating for awhile.
There is no press conference after this statement but the BOC's Patterson will be delivering a speech tomorrow expanding on the BOC's thinking and this decision.
