Bank of Canada holds interest rate steady amidst trade uncertainties

Bank of Canada holds interest rate steady amidst trade uncertainties

And, the bank said that trade tensions between the USA and China in particular are negatively impacting manufacturing as well as investment, and is pushing down commodity prices globally. The Bank of Canada is set to make another interest-rate announcement on Wednesday, which follows the news last week that the Canadian economy shed around 2,200 jobs in June (although the unemployment rate remained at a near-record low).

The bank raised its second-quarter growth estimate for Canada to 2.3 per cent, up from 1.3 per cent, citing some "temporary" factors, such as a surge in oil production.

"Recent data show the Canadian economy is returning to potential growth", the Bank of Canada said in a statement.

Wilkins said the uncertain trade environment is the "biggest wild card" in the outlook.

Governor Stephen Poloz and the governing council appeared to be in no rush to change the rate, even as they noted policy-makers in the USA and Europe have signalled they may introduce cuts to respond to weakened global economic activity.

The Canadian economy is rebounding at a stronger-than-expected pace from a weak run that almost ground the economy to a halt in late 2018 and early 2019.

The Bank of Canada might not be such an outlier after all.

The overnight rate remains at 1.75 per cent, where it has stayed since the Bank announced an interest rate increase in October 2018. The Fed has signaled a rate cut could come as soon as the end of July due to growing risks to USA economic growth. Market pricing suggests investors aren't expecting Poloz to match cuts by the Federal Reserve over the next year.

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A rate cut could also stoke housing market activity, according to Robert Colangelo, senior vice-president of Canadian banking financial institutions at ratings-agency DBRS, something that would work in the banks' favour.

BoC maintains interest rates as expected at 1.75%.

"Escalating trade conflicts, geopolitical tensions and related uncertainty are contributing to the broad-based slowdown of global economic activity", the bank said in its latest monetary policy report. The statement was ultimately a neutral one, but Bellefleur believes investors may have initially put more emphasis on the language surrounding trade tensions.

Yet the report also notes that moves by China to restrict canola and meat imports from Canada hurt exports and the ongoing tension between China and the United States is an overarching concern.

The Canadian dollar unwound its gains, touching 1.3143 to the USA dollar, or 76.09 US cents. "For the USA divisions, we incorporate moderate NIM (net interest margin) compression in 2019-21E".

The bank is now projecting second-quarter growth at an annual pace of 2.3 per cent, up from its April call of 1.3 per cent.

He added that any rate cut by the U.S. Federal Reserve at one of its upcoming meetings would be a key development for the Bank of Canada.

The bank's news release did not lay out a future direction for Canadian rates.