The Bank of Canada issued the following statement:
In May Canada’s headline inflation rate jumped to 2.4 percent from 2.0% on higher food and transport expenses.
Canada’s central bank left its benchmark goal for the overnight rate stable at 1.75 percentage but turned slightly more dovish since the outlook is clouded by “escalating international trade conflicts and geopolitical tensions” that’s weighing on business sentiment despite stronger-than-expected financial growth in the second quarter.
The Bank of Canada (BOC), which has retained its key rate steady since October 2018, said the market, as anticipated, was returning to its growth potential following temporary weakness in overdue 2018 and early 2019, and increased its 2019 growth forecast to 1.3 percent in April’s prediction of 1.2% as a surge in oil production helped increase growth, consumer spending keeps growing steadily and residential investment appears to have stabilized.
But softer overseas demand, lower commodity prices and trade constraints are departing their adverse effect and BOC lowered its 2020 growth prognosis to 1.9 percent in the preceding 2.1 percentage.
Canada’s gross domestic product climbed 1.3 percent year-on-year in the first quarter of the year, down from 1.6 percent in the past quarter, but BOC increased its prediction for growth in the second quarter to 1.3 percent from 1.0 percent from its latest monetary policy report.
After controlling its rate steady at 0.50 percent for two years, BOC in July 2017 started tightening its monetary policy stance and raised its rate five times before pausing in October 2018 as the international financial downturn began to wane.
As the other leading central banks, BOC turned more dovish at the beginning of this season but in May it turned into slightly more upbeat since it became clear the slowdown by the end of last season and early this season was temporary and the economy was starting to rally.
Today’s announcement is slightly more downbeat than in May, representing an economy that is growing around its possible but uncertainty from trade conflicts and global tensions is taking a toll on business opinion and clouding the outlook.
“Taken together, the level of accommodation being provided by the present policy interest rate stays proper,” BOC stated, adding it will be paying particular attention to the energy sector and the effects of trade conflicts about the prospects for growth and inflation in incoming data.