Economy Not as Rosy as Bank of Canada Had Thought

Today the Bank of Canada (BoC) decided to hold its key lending rate unchanged. This decision is best summed up by Financial Post’s Kevin Carmichael as follows:

“Canada’s central bank took a break from raising interest rates on Dec. 5. The pause could last longer than many were expecting, mostly because policy makers are worried that the energy industry’s contribution to economic growth will be “materially weaker” than expected only a couple of months ago.”

Softness in world oil prices and a slower housing market in Canada, plus an acutely more favorable corporate tax environment in the US are helping to push back on the Canadian economy for now. Announcements such as the closure of automobile plants in eastern Canada and other layoffs will put the BoC in a dovish mode (rather than their recent hawkish stance) in order to ensure we avoid recessionary conditions. This will tend to make BoC hold rates and/or eventually cut them.

For more information and interpretation please feel free to contact us.