- The overnight rate was held at 1.75%, as expected
- The current degree of monetary policy stimulus remains appropriate but no other guidance given
- Global developments the key to future decisions
Since its July meeting, conversation has shifted from ‘if’ to ‘when’ the BoC will join its many global peers in lowering interest rates. But that evolution wasn’t obvious in today’s policy statement, which was more neutral than expected and lent support to the Canadian dollar. The bank gave no direction regarding future policy moves, simply reiterating that the current degree of accommodation remains appropriate. That said, escalating US-China trade tensions were front and centre, with the BoC saying that conflict is “weighing more heavily on global economic momentum” than assumed in July. Global developments and their impact on Canada’s economy will receive “particular attention” when the BoC updates its forecasts in October. The combined ½ ppt add to growth from business investment and net trade in its 2020 GDP forecast looks vulnerable to a downward revision.
For now, an economy that is operating close to full capacity (thanks to a surprisingly strong Q2 GDP print), with inflation on target and wage growth picking up, has kept the BoC from committing to a future rate cut (or perhaps it’s Governor Poloz’s reluctance to provide any forward guidance). Already-high household debt levels—seeing renewed focus in today’s policy statement—also arguably raise the bar for a move. But we go back to that final sentence, which indicates global developments will be key in future rate decisions. The bank’s comments on the global outlook suggest the door is open to a rate cut. Our forecast assumes a move in January. We’ve been flagging growing risk of an earlier cut, which has only been diminished slightly by today’s statement.
