Bank of Canada Projects that the Canadian Economy is Stabilizing
The Central Bank of Canada Maintains the Interest Rate at 1.75 Percent
Last Wednesday, December 4th, Governor Stephen Poloz of the bank of Canada and his inner circle of official deputies in the Ministry of Finance announced that the Bank of Canada will maintain its target for the overnight rate at 1.75 percent. The Bank Rate is correspondingly 2 percent, and the deposit rate at 1.5 percent. Marking the ninth consecutive meeting at which the central bank has chosen to stay the course, a remarkable feat considering the current tension of the global economy.
As the end of 2019 approaches, the Bank of Canada will end the year as one of the only central banks that have not cut interest rates as a result of the ongoing trade wars in the global economy. This is most concerning for the state of Canada; as the United States remains Canada’s biggest trade partner, a country caught amidst the biggest trade war of the decade, the America-China Trade War.
The threat of international trade wars have made many governments unsure about the state of the economy. The past 12 months have seen dozens of interest rate cuts from over 40 different central banks, an understandable response to the weakest economic outlook since the great recession in 2008. While waves of monetary stimulus has receded lately, a great amount of doubt still remains.
Despite the extremely poor global outlook and the negative response from central banks around the world, Canadian policymakers seem comparatively optimistic that Canada has survived the worst of economic decline, citing recent data showing an unexpectedly strong growth in business investment throughout the third quarter, and the signs of a recession seemingly fading away. Policymakers assure the public that they will continue to assess and act upon incoming data, which have determined a positive outlook despite the deterioration of outports throughout the first two quarters.
“Overall, the tone of developments in recent weeks gives us more confidence in the outlook for growth and inflation that we set out back in October,” Stated Timothy Lane, deputy governor of the Bank of Canada, “We were expecting investment to decline in the second half of this year, but instead we have seen solid growth. Moreover, data have been revised upward, revealing that investment earlier this year was higher than previously reported.”
The central bank had written in its latest quarterly report on the Canadian economy that it assumes the output gap in the third quarter was between minus one and zero, otherwise known as closed. The central bank further writes that inflation is expected to remain around the Bank of Canada’s two percent target, which is indicative of an economy operating near capacity.
Despite the actions taken by many other central banks, it seems like the hope that the Canadian economy has taken a turn for the better is alive and well, and the Bank of Canada appears pleasantly surprised by the nation’s economic resilience.
“If the global outlook improves, we would not be surprised to see the [Bank of Canada] considering raising rates again given at-target inflation, strong labour and housing markets, and a closing of the output gap,” Stated Veronica Clark, an economist at Citibank.
While it may seem like the global trade disputes may not fix themselves anytime soon, data continues to suggest that Canada has a positive outlook on the economy moving into 2020, and the Bank of Canada assures all Canadians that they will continue to take the proper actions necessary for the well-being of the economy with all incoming data.
Written by Alex Joo, Writer for the Junior Economist
Originally published on December 7th, 2019
