Bank of Canada Holds Interest Rate

TORONTO (Reuters) – The Bank of Canada on Wednesday held its benchmark interest rate at 2.75%, marking its first pause after seven consecutive cuts.

Market Reaction:

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Comments

Doug Porter, Chief Economist at BMO Capital Markets
“Obviously it was a difficult decision. The market was much more torn – as were economists – than is normal ahead of a Bank of Canada decision, and understandably so, given the intense uncertainty. … He’s clearly laid open the possibility of getting a lot more aggressive if the economy deteriorates substantially. … As long as Canada isn’t the prime target for the trade war, I think that the Canadian dollar actually can improve here because the U.S. dollar is likely to remain under pressure over the next year in terms of yields.”

Andrew Kelvin, Head of Canadian and Global Rates Strategy at TD Securities
“Today’s decision is in line with our expectation, but the Bank of Canada did seem a bit dovish on what is coming next. We thought the bank was clearly laying out what their approach was going to be for conducting policy in an environment of trade uncertainty. Given that the economic data that we have seen in Canada has not been that negative, we did not think there was tangible evidence of a slowdown or clarity on the future path of the economy for the bank to preemptively cut rates. They are weary about stoking inflation again. … I do expect weakness to pile up, and the Bank will be forced to cut rates again.”

Nick Rees, Senior FX Market Analyst at Monex Europe Ltd
“While consensus had been split ahead of today’s rate announcement, we do not think it should come as a surprise that the Governing Council chose to pause its easing cycle in this latest decision. Granted, headline inflation undershot expectations yesterday – this was largely the result of gasoline and travel prices, both of which should be discounted in BoC thinking. More importantly, underlying inflation metrics remain elevated. … Policymakers now have an opportunity to take stock.”

Stephen Brown, Deputy Chief North America Economist at Capital Economics
“The Bank of Canada’s decision to keep interest rates unchanged at 2.75% today was not a huge surprise given recent above-target gains in core prices, concerns about future price increases, and uncertainty about the extent to which the economy requires additional policy support in light of changing trade policy. Nonetheless, the bank’s communications were mostly dovish, lending support to our view that it will eventually cut interest rates to 2.0% this year.”