Economy

Bank of Canada holds rates, frets about trade war damage

Bank of Canada holds rates, frets about trade war damage”

Governor Stephen Poloz and the governing council appeared to be in no rush to change the rate, even as they noted policy-makers in the US and Europe have signalled they may introduce cuts to respond to weakened global economic activity.

Barclays Capital analyst John Aiken wrote no longer too lengthy previously that the "skill for the banks to grind out mid-single digit earnings growth for the year could presumably well maybe point out no longer easy", and that a Financial institution of Canada rate-reduce could presumably well maybe concern the outlook of lenders who're more exposed to the Canadian market.

Notes ongoing trade tensions are having a material effect on global economic outlook. "Taken together, the degree of accommodation being provided by the current policy interest rate remains appropriate".

Fallout from the uncertain worldwide trade environment was also reflected in the bank's updated economic projections, which were also released Wednesday in the bank's quarterly monetary policy report.

The bank lowered its forecast for 2019 global growth Wednesday to 3 per cent, down from its April forecast of 3.2 per cent.

"An appreciating currency is a particular worry for a Canadian economy weighed downed by household debt and banking on its exporters to carry more of the growth burden", the financial wire service points out.

"Escalation of trade conflicts remains the biggest downside risk to the global and Canadian outlooks", it said, adding that the trade wars were curbing manufacturing activity and business investment while pushing commodity prices down.

The Bank of Canada is leaving its overnight rate unchanged as positive signs in the Canadian economy are mostly offset by global trade tensions, including China's restrictions on Canadian canola and meat. The changes, including stricter inspections on Canadian goods by Chinese authorities, have come amid a bilateral diplomatic dispute.

Net interest margin for the Canadian personal and commercial operations of Canada's Big Six banks rose by an average in the second quarter (which ended April 30) of two basis points over the previous quarter, and by five points over a year earlier, according to a recent CIBC World Markets report. It predicted growth an annual pace of 1.5 per cent for the third quarter.

The Bank of Canada's policymakers are widely expected to hold the trend-setting rate steady as Canada exits a sharp slowdown that almost brought the economy to a halt at the start of the year.

The unexpectedly robust bounce back, the bank said, was due to temporary factors such as a recovery from weather-related weaknesses and a boost in oil production.

Canadian banks rode a wave of interest-rate hikes to higher profits in 2017 and 2018, in part because of gains in net interest income, generated by the spread between the higher rates they charge for loans and the lower rates they pay out on customer deposits.



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