Canadian Monetary Stance Deemed Appropriate… No Changes Made

May 29, 2019

Just five weeks separated the last meeting of the Bank of Canada’s Governing Council on April 24 and this week’s, and officials decided to maintain the overnight rate target at 1.75% as was expected. A released statement observes that the economic landscape has evolved as anticipated in three notable areas: 1) domestic demand is picking up after two quarters of slower expansion; 2) the global landscape is better in some respects such as the removal of steel and aluminum tariffs but with persistent heightened uncertainty; and 3) both total and core CPI inflation have hovered near the 2% target and are likely to continue doing so.

The Council meets eight scheduled times a year but only conducts a full review with new macroeconomic forecasts at the meetings in January, April, July, and October. The next rate announcement on July 10th will coincide with publication of the quarterly Monetary Policy Report. From a low of 0.50%, the Governing Council has enacted five normalizing 25-basis point rate hikes, beginning in July 2017 when the federal funds target range was 1.0 to 1.25% and followed up in September 2017, January 2018, July 2018 and October 2018.

The Federal Reserve has also engineered five 25-basis point rate hikes since July 2017, leaving the U.S./Canadian central bank rate spread unchanged. The U.S. dollar is now trading roughly 4% stronger than its mid-2017 level against the Canadian dollar. Over the same span, by comparison, the greenback has risen 6% against the peso and 2.5% relative to the euro but fallen almost 3% against the yen.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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