Sunday , June 20 2021

Walk, cut or stand? Bank of Canada decides on interest rates today



The Bank of Canada is not expected to change its benchmark interest rate when it unveils its latest decision on Wednesday, but that does not mean that the Bank's policymakers think nothing has changed in the country's economy.

The bank rate, known as the overnight rate target, is the interest rate charged by retail banks for short-term borrowing, and filters the rate that Canadian borrowers and savers get on savings accounts, credit lines, and variable rate. mortgages

The central bank will announce its latest rate decision at 10 am ET. CBC News will have live coverage of the ruling and a press conference that follows soon thereafter.

In October, when the bank raised its aliquot to the current level of 1.75%, the central bank justified its decision by looking at the various ways in which the economy was moving. Inflation was at the upper limit of the range the bank likes to see in the definition of monetary policy, and the labor market was creeping.

The price of a barrel of oil had fallen from its highs, but West Texas Intermediate was still trading north of $ 65 a barrel, and corporate investment was also bullish. Add all that up, and the economy is expected to grow about 2.1% this year – enough to justify a modest patch of the bank rate to more normal levels.

But that was then, and that is now.

Since then, Canada's economy has shown enough signs of weakness, as there is speculation that a cut may come sooner or later, and at the very least the economists covering the central bank are lowering their expectations of how many increases the way.

On Tuesday, new Statistics Canada figures showed Canada's trade deficit doubled to $ 2.1 billion in November, largely as oil prices plummeted, affecting the export side of the record book.

And, according to Scotiabank economist Derek Holt, "the window on trading conditions will become even more blurred," as the US government's closure potentially affects December's trade data and Alberta's production cuts reduce energy exports in January.

If there are reasons for optimism, Holt says, is that the slowdown comes just after the "torrid" rhythm of Canadian exports earlier this year, so some declines were expected. "An issue I'd like to hear [Bank of Canada] Tomorrow is the point where they believe the recent data are due to an anticipated export demand, "he said.

CIBC economist Avery Shenfeld says the bank is in a difficult situation, pushing the needle between reduced expectations, and making it clear that suggesting a cut may be necessary.

"We see the tone of the statement being along the lines of 'we will return to you later', instead of 'we're all done here, people' in terms of greater tightening in rates interest rate, "Shenfeld said, adding that he expects the bank to stay on the sidelines by April at the earliest.

This is a timeline similar to the one that Robert Dent of Japanese investment bank Nomura Securities predicts, rising slightly to 2% in April, followed by a cautious one later this year.

Dent notes that despite some black clouds on the horizon, Canada's economy is doing well on several other fronts, notably the labor market, where the unemployment rate has fallen to the lowest level ever recorded in November, from 5.6% . stay there until December too.

These data points will be factors that the bank will consider, and one reason the Bank of Canada remains on the trail it has already defined for itself.

"The December statement suggests that policymakers remain confident that further interest increases will be needed," he said, but "the effect of rising interest rates on excessively indebted households, the persistence of oil prices and deceleration of global growth pose negative risks. " Bank of Canada Outlook that can begin to be recognized more strongly at the January meeting. "

Bank of Montreal economist Benjamin Reitzes says the picture looks muddled, and the bank will clearly err on the side of caution, but the question is: how much?

"Apart from a few decent domestic data points," he said, "the policy background has deteriorated, driven largely by global economic and financial conditions, so expect more caution from Governor Poloz and the Bank to stay on the sidelines. at least for the next two months. "

While all economists surveyed by Bloomberg, with the exception of one of 18, think that doing nothing is the most likely outcome, investment investors known as overnight index swaps believe there is about a six-fold chance of a cut in the rate on Wednesday.


Source link