March 20, 2019

Bank of Canada's interest rate decision helps utilities and telecom sectors

10 March 2019, 11:25 | Hattie Nash

Bank of Canada holds rate steady, notes 'increased uncertainty' about future hikes

USDCAD price chart

The statement also indicated that the Bank is likely to mark down its 2019 forecast: "it appears that the economy will be weaker in the first half of 2019 than the Bank projected in January".

Given the mixed picture, the central bank said it would "take time to gauge the persistence of below-potential growth and the implications for the inflation outlook".

A lot of economic data have been disappointing, including exports, investment and consumption.

"It looks like there is absolutely no reason right now to raise rates unless we get some sort of major resolution on the trade front between the United States and China", Lam said.

USDCAD price chart 4-hour
USDCAD Soars After Bank of Canada Strikes Dovish Tone

"Although we figured the economy was in for a detour at the end of a year ago, that detour may wind up being longer than we had expected", Patterson said at an event hosted by Hamilton Chamber of Commerce.

The Canadian dollar lost almost half a cent after the central bank announced today that it is maintaining its key interest rate at 1.75 percent. Unless we see a robust growth recovery mid-year (with that hurdle rising by the day) further rate hikes in 2019 are all but off the table.

Great Canadian Gaming Corp fell 12.6 percent, the most on the TSX, after reporting fourth quarter results.

The loonie fell 0.7 per cent to $1.3439 per us dollar, touching the weakest since January 4 and paring its 2019 advance to 1.5 per cent. Yields on two-year Canadian government bonds dropped 8 basis points to 1.66 per cent, the lowest since December. Economic growth slowed to an annualized pace of just 0.4 per cent.

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The Bank of Canada has left the interest rate unchanged for the second straight quarter.

The central bank had been warning Canadians to expect a soft patch in late 2018 and early 2019 primarily due to the steep drop in oil prices late past year.

"Against this backdrop, I'd expect the hurdle rate to resume rate hikes to be quite high", said Sophia Drossos, a former economist at the U.S. Federal Reserve and Morgan Stanley, who now runs her own advisory firm in NY.

Money markets have moved to price in about a 35 per cent chance of an interest rate cut this year.

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"Consumer spending and the housing market were soft, despite strong growth in employment and labour income", the statement said. Now, the interest rate outlook is even more opaque than in January when the BoC made an effort to inject some ambiguity into the timing of future rate hikes. The Bank of Canada's next quarterly economic update is scheduled for release on April 24.

The moderation, it added, has been caused in large part by concerns related to trade tensions and uncertainty.

The rate decision report highlighted the recent slowdown experienced in the Canadian economy saying, "the fourth quarter slowdown was sharper, more broadly based than forecast". The bank, however, noted that global economic prospects would improve if ongoing trade conflicts are resolved.

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