Bank of Canada leaves interest rate unchanged...for now

Bank of Canada Governor Stephen Poloz takes part in a news conference in Ottawa, Ontario, Canada, July 10, 2019. REUTERS/Chris Wattie

The Bank of Canada is leaving its key interest rate unchanged while keeping the door open for future cuts.

“As the U.S.-China trade conflict has escalated, world trade has contracted and business investment has weakened. This is weighing more heavily on global economic momentum than the Bank had projected in its July Monetary Policy Report (MPR),” said the Bank of Canada in a news release.

Despite global economic uncertainty and other central banks keen to cut, most economists weren’t expecting the Bank of Canada to pull the trigger at this meeting.

Canada’s domestic outlook isn’t as gloomy. The economy grew at 3.7 per cent annualized in the second quarter, job growth has been robust, and the housing market seems to be adjusting to new mortgage rules.

“In Canada, growth in the second quarter was strong and exceeded the Bank’s July expectation, although some of this strength is expected to be temporary,” said the bank.

The last time the Bank of Canada made a move was October, but that was a 0.25 per cent hike, to 1.75 per cent.

“In sum, Canada’s economy is operating close to potential and inflation is on target. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies,” said the bank.

Avery Shenfeld, chief economist at CIBC World Markets, say the Bank of Canada will ultimately have to cut, but thinks December is more likely than October.

“The Bank of Canada left rates where they were, and drafted a statement designed to give them some time to think about what to do next, rather than dropping a clear hint of an October cut,” he said in a research note.

“The final paragraph, where the policy decision is summarized, had an on-the-one-hand, on-the-other-hand tone, noting first that the Canadian economy was close to potential (i.e. the output gap has materially closed after Q2) and has on target inflation, but then adding a key ‘however’ pertaining to the global situation that is ‘taking a toll on the global AND CANADIAN economies’ (emphasis added).”

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitte@jessysbains

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