BoC holds interest rates for now

The Bank of Canada (BoC) announces to stay the course on April 18th as the Canadian economy manages mixed signals. As widely expected, the Bank of Canada (BoC) left the overnight rate unchanged at 1.25% today. The central bank acknowledged rising core inflation, saying this is “consistent with an economy operating with little slack”. The central bank sees total inflation averaging 2.3% this year.

Today, BoC Governor Poloz maintained its target for the overnight rate at 1¼%. The Bank Rate is correspondingly 1½% and the deposit rate is 1%. Inflation in Canada is close to 2% as temporary factors that have been weighing on inflation have largely dissipated, as expected. A reminder that these interest levels still remain low with interest rates averaging 5.90% from 1990 to 2018 (Source: Trading Economics).

Based on today’s message, a May rate hike looks unlikely at this point. That said, should the “data-dependent” Bank of Canada see upside economic surprises before the meeting of May 30th, e.g. monthly GDP, wage, employment and inflation, a change of stance remains possible. Recall that while the economy is currently at capacity, the overnight rate remains 175 basis points below the estimated neutral rate of 3%.