OTTAWA -The divergence of monetary policy in North America is widening.
Canada's economy not from the woods yet: What analysts say about today’s rate decision
What does today’s decision mean for future rate hikes, our rising loonie and the outlook for the economy? Economists give their takes
While Canada’s central bank is suppressing adjusting its key interest rate as it awaits federal stimulus details, america has put down on the road to higher lending levels.
For now, governor Stephen Poloz and his policymakers are possessing their template assessment from the state of the economy, last updated in January, insisting on Wednesday there is no urgency to adjust their trendsetting interest rate, now at 0.5 per cent.
That’s a choice widely shared by analysts, and uses two quarter-point cuts in official borrowing levels this past year – in January and July – which were intended to buffer the fallout from the global oil-price collapse.
Wednesday’s decision marks a small – but telling – transfer of Canada because the rate decision this January, when Poloz and the team chose to go against broad market expectations of lower rates of interest, and kept rates on hold.
Instead, policymakers are taking a wait-and-see approach on the new federal government’s plans for multi-billion-dollar spending along with a string of annual deficits proposed by the Liberals in their October election campaign. Ottawa will unveil its 2016-17 budget on March 22.
Related
- David Rosenberg: Canadian economy not too dead, after all
-
-
-
Economic weakness in 2015 – highlighted with a first-half technical recession and continuing pressure from oil prices – has lessened somewhat, with the year ending within an unexpected, though still mild, bounce back in December’s gdp data.
“Financial market volatility, reflecting heightened concerns about economic momentum, seems to be abating,” policymakers said Wednesday.
“Although downside risks remain, the financial institution still expects global growth to strengthen this season and then. Simultaneously, the low level of oil prices will continue to dampen development in Canada along with other energy-producing countries.”
The Bank of Canada acknowledged that “in light of shifting expectations for monetary policy in Canada and also the Usa, the Canadian dollar has appreciated from the recent lows.”
That shift in policy is highlighted by the U.S. Federal Reserve’s decision to begin its long-stalled push for higher lending levels – a sign it is certain that economic growth and improved employment levels have gained traction.
On Wednesday, our central bank said Canada’s employment picture has “held up despite job losses in resource-intensive regions, and household spending continues to underpin domestic demand.”
However, overall business investment – something the bank continues to be counting on to assist lift economic growth – “remains very weak due to retrenchment within the resource sector.”
Canada’s policymakers will hold back until their next rate decision in April – following the Trudeau government’s budget release – before judging the likely impact of stimulus spending on GDP.
“At least as vital is always that commodity prices have recovered somewhat, and also the economic data examines tiny bit better, and inflation has nudged up – and also the housing market continues to be extremely hot, at least over a couple of markets,” said Douglas Porter, chief economist at BMO Capital Markets.
“And I personally think that’s reason enough for them to remain on the sidelines.”
However, any rate adjustment in those days could be premature and Poloz and the team might want to hold back until the July rate announcement and its quarterly Monetary Policy Report before making moving.
Like most Canadians, the central bank “continues you may anticipate significant fiscal stimulus in the federal budget,” said Sherry Cooper, chief economist at Dominion Lending Centres.
Policymakers “will incorporate their assessment of the economic results of such stimulus in their April projection,” she added. “End of story.”
gisfeld@nationalpost.com
Twitter.com/gisfeld
