The Bank of Canada’s overnight rate remains unchanged at 1.75%, as anticipated by professionals and speculators alike.
The Central Bank has insisted in recent announcements that continued rate hikes would be necessary but has now halted any movement, for the time being. Five rate hikes were instituted since July 2017 but continued worry over global trade and slow economic growth have given the Bank pause since October of last year. According to Derek Holt, vice president of capital markets at Scotiabank, “the market went too far in terms of pricing out rate hikes further on.”
The global trade outlook plays an enormous role in the Canadian economy because our country is a huge exporter in commodities. Thus we look favourably on a potential US-China trade agreement, but conflict still remains until the two trade giants can come to an agreement. This tension will continue to “[weigh] on global demand and commodity prices.”
Economic growth in the US forecast to slow this year and reach “a more sustainable pace.” The Bank has stated that global growth is expected “to slow to 3.4% in 2019 from 3.7% in 2018.” But within Canada export volumes have already fallen in all but 2 of 11 sectors, as shown by Statistics Canada trade data.
In particular, the Central Bank is focused on housing and energy in particular.
“While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada’s oil sector is projected to weaken further,” the Bank announced. It seems economic growth is going to take yet another hit because of further cuts to the energy sector.
The Bank confirmed that “the oil crisis took a major dive at the end of last year when Canada’s trade deficit more than doubled from $900 million in October to $2.1 billion in November… [and] investment in Canada’s oil sector is projected to weaken further.” Canada is in trouble!
“Consumption spending and housing investment have been weaker than expected,” the Bank said. The proof is in the pudding. People are making less so they’re spending less. “Household spending will be dampened further by slow growth in oil-producing provinces.” Not only that, but more and more Canadians are looking for debt relief. The future of financial markets and housing prices is anybody’s guess, but both are expected to get worse before they get better.
However, the fates did throw us one bone to chew on. The Canadian dollar marked its best intraday level since December at 1.3180 to the USD and is expected to improve in 2019.
The Bank will make its next overnight interest rate announcement in March, followed by 6 more in April, May, July, September, October, December. The Bank has consistently announced that further hikes are on their way but most speculators are doubtful how soon that will be.
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