News Story

Bank of Canada Holds on Interest Rates as U.S.-China Trade Conflict Weighs

– The Bank of Canada (BoC) decided to keep its benchmark interest rate unchanged on Wednesday, amid signs that the current trade conflict between the U.S. and Canada negatively impacted both global demand and commodity prices.

As expected, the BoC said it was holding its overnight cash rate steady at 1.75%.

The BoC cited forecasts that the global economic expansion was expected to moderate to 3.4% this year from 3.7% in 2018 and pointed to an expected slowdown “to a more sustainable pace” for the U.S. economy.

“However, there are increasing signs that the US-China trade conflict is weighing on global demand and commodity prices,” the BOC said in its statement.

In its monetary policy statement, the BoC cut its forecast for growth in the Canadian economy to 1.7% in 2019, compared to the prior 2.1%, placing the blame on the recent decline in oil prices.

The central bank also noted that inflation would likely remain below 2% for much of 2019 due to lower gasoline prices.

“Weighing all of these factors, Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” the BoC concluded.

Analysts had widely anticipated that the Canadian central bank would stand pat, given decreasing oil prices and easing wage inflation, but still forecast an additional two hikes for this year.

“With core inflation measures still sitting around the 2% target and unemployment at a 40-year low, we still expect to see at least two further Bank of Canada rate hikes this year,” ING economist James Smith said.

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