BoC Leaves Key Rate Unchanged Again, Continues High Wire Act

Stephen Poloz, Bank of Canada Governor, announced this morning that BoC’s key rate will remain unchanged for the time being. This was an expected call after Canada’s second quarter economic performance turned out better than expectations and better than first quarter results. There is a tight rope being walked to maintain balance by BoC. On the one hand, Poloz wants to increase rates over the longer term to what he sees as being “normal” levels, and on the other hand, the risk of raising the value of the Canadian dollar would expose Canada’s most fundamental problem of globally uncompetitive productivity. Many believe that the “new” normal for interest rates is here now.

The good news for Canada is that it seems to have escaped, for the moment, the uncertainty spurred by the trade war between the U.S. and China. Other countries around the world, including European countries, seem to be suffering from this more than Canada. Canada has suffered from China cutting off some trade, but trading with other countries, mainly the U.S., has picked up the slack. Trade issues with the U.S. have been resolved. The new North American trade agreement should be ratified shortly.

The BoC Key Rate remains at 1.75% and the Prime Rate at major FI’s should remain at 3.95%.