- The overnight rate was held at 1.75% for a fifth consecutive meeting
- The bank’s neutral policy bias was unchanged; accommodative monetary policy remains warranted
- Once again, developments in household spending, oil markets, and global trade will be key to any future moves
The five weeks since the BoC’s last rate announcement were action-packed with improving domestic data but rising global trade tensions. Today’s policy statement put the former front and centre. The bank noted “accumulating evidence” that the economy’s slowdown over the last two quarters will be transitory. Early signs of recovery in the energy sector, stabilization in most housing markets, and strong hiring were seen supporting that view. Consumer spending and exports are expected to improve in Q2—perhaps the BoC’s way of telling us not to get worked up about Friday’s Q1 GDP report, which should see softness in both categories.
The statement also noted that, while global growth is evolving as expected, escalating trade conflicts are generating heightened uncertainty. The BoC has in mind both rising US-China trade tensions (including higher tariff rates) and Chinese restrictions on Canadian imports. Those development were countered by recent removal of US steel and aluminum tariffs and Canada’s retaliatory tariffs, as well as improving prospects for CUSMA ratification. It’s worth noting that global growth and trade tensions were at the top of the BoC’s April statement but were bumped lower in today’s release. While Governor Poloz has called trade conflicts a top risk to the macroeconomic outlook, the BoC doesn’t seem to be panicking about recent developments.
Senior Deputy Governor Wilkins will give an economic progress report tomorrow in Calgary.
