The Bank of Canada (BoC) today has announced that it will be holding their key at 1.75%, translating to a prime rate of 3.95% at major financial institutions. The tone of their announcement definitely shows a more dovish tone (meaning a higher likelyhood of reducing the key rate in near future). There are a few important reasons for this:
1.) Canadian economic headwinds prevail with the western Canadian resources based economy continuing to suffer due to world demand and uncompetitive situation for oil producers not having a cost effective way to get more crude product to market. This influences BoC towards lowering their key rate.
2.) World trade uncertainties as we all wait for either the U.S or China to blink first towards settling disputes. This influences the BoC towards lowering their key rate.
3.) BoC’s concern about the Canadian consumer debtload – this influences them towards keeping the rate up.
4.) The U.S. Federal Reserve (central bank) is likely going to lower it’s key rate today. This can possibly work to strengthen the Canadian dollar which will not help Canadian exporters. This influences the BoC towards lowering their key rate.
In summary, BoC will need to cut it’s ket rate in the near to medium term in order to avoid a potential recession.