Apr 29, 2019
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First National Financial LP

As expected the Bank of Canada has, once again, moved to the sidelines when it comes to interest rate policy.  This time, though, the bankers appear to have unfolded their lawn chairs, taken a seat and put their feet up; settling-in for an extended period of inactivity.

The central bank’s benchmark policy rate was left unchanged at 1.75% during last week’s setting.  More significantly, the Bank made a small change in wording to its Monetary Policy Report that sends a big message.  It eliminated references to the need for future interest rate hikes, signalling it has shifted to a wait-and-see status.  Many market watchers do not expect any rate increases (or decreases) until early 2020.

So what would it take for the Bank of Canada to get back in the game?  It would have been something drastic, like a sudden jump in inflation or a rapid drop in employment.

Right now, though, the Bank finds itself somewhat boxed-in.  Inflation is showing some signs of increasing, but not enough to justify interest rate intervention.  Canadian household debt is climbing back into record territory and higher rates would only compound that problem. 

The BoC has to pay attention to what the U.S. Federal Reserve is doing, and right now there is little political appetite for rate increases in the United States.  As well, the election cycle is heating up in both the U.S. and Canada and central banks are loath to make any moves that could be seen as giving advantage to any side in an election campaign.