Bank of Canada Holds; We May Be Here a While

Bank of Canada Holds; We May Be Here a While”

Canada's central bank has chose to keep its benchmark interest rate at 1.75 per cent, and says the timing of possible future hikes has become increasingly uncertain.

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

In the announcement, the bank said it expects the country's economy will be weaker in the first half of 2019 than it projected in January.

Key policymakers in both the United States and UK signalled it was more prudent to be patient with rates than rush them higher.

"Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook", said the statement, which explained some of the factors behind the decision.

Stephen Poloz, the governor, and his deputies on the Governing Council expected slower global economic growth, but the slowdown has been "more pronounced and widespread" than forecast in January, the central bank said in its latest policy statement.

The Canadian dollar dipped for sixth consecutive day and North American markets fell Thursday after global central banks continued convey a dovish tone about raising interest rates.

Near-term economic softness, elevated uncertainty, the clear near-term bias to holding rates, and the likelihood that the neutral interest rate is below the Bank of Canada's estimates all point in the same direction.

The central bank has raised its key rate five times since mid-2017 to 1.75 percent, but has been on hold since last October.

A Reuters poll last week found that most economists expect one more hike in 2019, though not until the third quarter, with a further hike expected in 2020.

But policy-makers were caught off guard when last Friday's Statistics Canada report showed a sudden deceleration in the fourth quarter for other categories as well, Patterson said.

"Consumer spending and the housing market were soft, despite strong growth in employment and labour income", the bank said Wednesday. Consumption spending grew at the slowest pace in nearly four years, housing investment fell by the most in a decade, business spending dropped sharply for a second straight quarter, and domestic demand posted its largest decline since 2015.

The Canadian dollar decreased by almost half a cent.

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". Trade tensions and uncertainty continue to dampen these components of growth. Market sentiment, as gauged by stock markets, may be more enthusiastic than economic performance due to the anticipation of a resolution of the U.S.

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