Loonie Weakens After BOC Decision
April 25, 2019 11:41 amVideo
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The
Canadian dollar declined against the USD after the Bank of Canada (BOC)
delivered its interest rates decision. As expected, the bank left interest
rates unchanged at the current 1.75%. The bank also committed itself to more
accommodative policies in the near future. In the monetary policy statement,
the key points were:
First,
the bank said that the global growth had slowed down by more than the bank’s
forecast in January. It blamed this on the issues relating to growth, and the
fact that the US surplus effects were fading. In response, many central banks
around the world have tweaked the monetary policy to adapt to the new normal of
slow growth. Nonetheless, the bank expects the economy to pick up in 2019 and
grow by 3.75%.
Second,
in Canada, the bank said that the growth in the first quarter was slower than
what was expected. It blamed this on last year’s oil price slowdown, which
curbed investments in the oil and gas sector. In the other sectors, investments
have been hurt by the ongoing uncertainty on trade. The bank expects that the
growth will pick up in the second quarter. The housing sector is expected to stabilize
while consumption will likely continue to improve. Investments in the other
sectors will likely increase, supported by high capacity utilization and
external demand. As such, the bank expects the economy to grow by 1.2% in 2019 and 2% in 2020.
In
the accompanying press conference, the
bank focused on four main points. First, Stephen Poloz talked about the
oil and gas sector, which is currently under stress because of the limited
access to market. This has led to significant downward drag in the sector.
Second, the bank talked about the uncertainties brought about by trade. This
uncertainty has led to subdued investments in most sectors. This could be
offset by the signing of the agreement with US and Mexico will lead to
accelerated growth. The downward risk is that CUSMA will not be ratified as the
US electioneering period continues.
Third,
the bank said that it was monitoring the development in the housing market. A
number of places in the country like Halifax, Montreal, and Ottawa have seen
solid growth while in Toronto, the activity has been relatively tepid. Finally,
the bank talked about the recent fiscal announcements such as the initiatives
announced by the federal government and in Quebec and British Columbia.
However, these initiatives are likely to be offset by the reduction in
government spending in Ontario. In response to these issues, the Canadian
dollar continued to decline against the USD as shown below.
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