The Bank of Canada (BoC) kept the target rate at 1.75% at its July 10 meeting. The tone of the statement was positive on the Canadian economy itself, but was extremely cautious regarding the potential impact of global trade tensions.
The BoC’s statement spent the first two paragraphs focusing on global trade concerns and the resulting signals regarding possible monetary policy accommodation from global central banks. The Canadian economy was described as returning to potential, a result of temporary improvements from weather and a surge in oil production. Employment remains extremely strong, which continues to support consumption. Stabilization of the housing market continues, even with uneven adjustments among the provinces. The consumer price index remains near the BoC’s target of 2%, with the recent uptick above 2% classified as temporary.
The BoC revised up their expectation for Canadian growth for the remainder of 2019 to 1.3% (from 1.2%), but lowered their expectation for 2020 to 1.9% (from 2.1%). The estimate for consumer price index (CPI) inflation was lowered 0.1% in 2019 and 2020 to 1.8% and 1.9%, respectively.
Rather than sound upbeat about recent growth exceeding their forecast, the BoC focused on the slowdown in global economic activity as a result of the global trade conflicts and the possible spillover effects. The combined statement and press conference were extremely dovish in nature. The BoC cemented the fact that monetary policy is firmly on hold awaiting either a resolution or an escalation of global trade issues. As a result of the unexpected dovish shift, both equites and fixed income should remain supported going forward. The Canadian dollar, on the other hand, may have a more difficult time following its recent run.