Published: Sat, January 12, 2019
Finance | By Loren Pratt

Bank of Canada expected to hold interest rates in today’s policy decision

Bank of Canada expected to hold interest rates in today’s policy decision

"The Bank of Canada has hiked and will continue to hike into a more pronounced slowdown than the USA", said Frances Donald, head of macroeconomic strategy at Manulife Asset Management. After that, views diverge. The rebound in crude oil price action in broad market is backed by OPEC's production and supply cuts and optimism surrounding Sino-U.S trade talks as China is biggest importer of crude oil and positive outcome would lead in trade talks will lead to improvement in demand for crude oil resulting in bullish crude oil price market.

There were no surprises from the Bank of Canada. Most recently he worked with, where he provided market analysis on economic data and corporate news. "We're still expecting a hike or two in 2019", though "it's going to really depend on what sort of recovery we get in oil prices and when we get it".

Governor Stephen Poloz has been gradually raising rates since mid-2017 - but the pace at which future increases arrive remains a big question. The consumer sector has been carrying the Canadian economy for years, and this was by the central bank's design; its period of low interest rates after the Great Recession was entirely meant to keep consumer spending flowing while a heavily battered economy made some very hard adjustments. Both spot and futures markets gained by 2% today with spot price of United States crude oil moving back above $50 per barrel which provided great deal of fundamental support to crude oil linked currency - Canadian Loonie.

"Oil prices are expected to average $67/bbl in 2019 and 2020, $2/bbl lower than June projections; however, uncertainty around the forecast is high", the World Bank said in its January 2019 Global Economic Prospects report.

Apart from revising down its oil price projections and warning about the uncertainties surrounding oil price trends this year, the World Bank also noted that global economic growth is expected to slow to 2.9 percent in 2019 from 3 percent in 2018, as worldwide trade and investment weaken.

In overnight trading, the Nikkei gained 1.1 per cent to close at 20,427. After that, the pace of the expansion should return to near its recent trend of 2 per cent for the rest of the year.

The US Dollar continued its decline against the Canadian Dollar for second trading session as crude oil price action saw solid gains for second trading session. Even oil prices have shown a bit of a comeback in recent days, giving a lift to the Canadian dollar to start the year. For one, signs have begun to emerge that higher interest rates are slowing consumption and the housing market. There is also new evidence suggesting the economy had more slack in recent years than previously thought.

Plus, with markets also pricing in a rate pause from the Federal Reserve, the Canadian central bank may be reluctant to press ahead with higher interest rates for fear of driving up the country's currency.

But Poloz isn't sounding like someone who has given up on rate increases.

"Weighing all of these factors, Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target", the central bank said.

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