The Bank of Canada (BoC) left the overnight rate unchanged at 1.75% at its December 5 meeting. The tone around the message softened dramatically from the previous meeting in October.
The opening paragraphs reflected concerns that trade conflicts have been weighing on global growth and also focused on the recent fall in oil prices. In addition, the decline in prices for Western Canada Select oil and the associated cuts in production by the Canadian energy sector are something the BoC will continue monitoring.
While the BoC described the Canadian economy as growing in line with their projections and inflation as currently tracking the its core measures, it indicated there may be additional room for non-inflationary growth.
The BoC continues to expect that policy rates will need to rise to a neutral range, but it appears the speed at which they need to do so has fallen. After a statement , I believe that the BoC would will not hike the target overnight rate at its January 9 meeting and leaves us expecting that the next rate hike would be in March. This outcome should be positive for the Canadian fixed income markets.