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Brian Schneider | April 24, 2019

Bank of Canada shifts back to data dependency

The Bank of Canada (BoC) left the target rate unchanged at 1.75% at Wednesday’s meeting. While the outcome was expected, the tone of the statement was certainly on the dovish side.

The statement issued by the BoC acknowledged that growth in Canada is expected to be slower than previously anticipated during the first half of the year, and then pick back up again in the second half of the year. It referenced unusual Canada winter weather conditions and the continuation of trade conflicts impact on business activity in both Canada and across the globe.

The second half rebound is expected to be driven by strong employment growth and the corresponding pick up in consumption, as well as a pick-up in exports due to improving global financial conditions.

The BoC expects growth in 2019 to be 1.2% (a downgrade from 1.7%), 2.1% in 2020 (unchanged) and 2.0% in 2021 (unchanged). Inflation is expected to dip briefly in the third quarter and then to return to near 2.0% over the next year or two.

The bias to raise the target rate was removed in this statement and future policy moves were described as being data dependent. The press conference that followed the statement was actually more upbeat than the statement itself, as Governor Stephen Poloz described the BoC as being skeptical of the most negative sentiment from recent economic data. Given the downgrade to the near-term growth forecast, it appears monetary policy will be on hold for the rest of the year. As long as growth or inflation do not pick up significantly faster than the BoC expects, today’s outcome should be supportive of both equities and fixed income. The Canadian dollar, should face headwinds as the BoC has clearly turned less hawkish.

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The opinions referenced above are those of the author as of April 24, 2019. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.