As expected, the Bank of Canada kept its overnight rate unchanged at 1.75 percent at the end of its Governing Council meeting today. The press release depicts an economy performing very much in line with the Bank's forecasts. Growth slowed in Q3, but fears of a global slowdown seem to be easing despite the persistence of trade tensions. Inflation hews very close to the 2 percent target, and any increase in headline CPI in the coming months, as past falls in gasoline prices drop out of the calculation, is expected to be temporary.
Unsurprisingly, trade fears seem to represent the greatest source of uncertainty for the Bank. This piece from Slate has a litany of wacky trade moves by Trump in just the past few days -- tariffs on Argentine and Brazilian steel, tariffs on French wine and cheese, contradictory signals on prospects for a trade deal with China. Canada is not directly in the firing line, though given Trump's gossamer-thin skin, Justin Trudeau really should be more careful about getting caught badmouthing him in public gatherings. Getting caught once, at the G7 meeting in Quebec City last year, was bad enough. Doing the same thing again at the NATO summit in London is asking for trouble.
Governor Stephen Poloz is entering the last six months of his tenure, which ends in June next year. Despite the relatively upbeat tone of today's announcement, markets still think the Bank will join its international peers in cutting rates before Poloz moves on. The next rate announcement is set for January 22, when the Bank will also release its updated forecasts. It promises that its rate decisions in the coming months will be based not only on trade and the global outlook, but also its reading of fiscal policy. If the Trudeau government follows through on the fiscal stimulus promised in the recent election campaign, the Bank may see less need to provide additional monetary stimulus.
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