OTTAWA—The fall in oil prices and greater-than-expected weakness in housing markets are two developments temporarily dampening the Bank of Canada’s outlook for the Canadian economy. To no surprise, the BoC kept its overnight rate target at 1.75 percent on Jan. 9 and implied more uncertainty about the pace of rate hikes going forward, as the economy works through a soft patch.
“The policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” according to the bank’s Jan. 9 press release. The insertion of “over time” distinguishes the sentence from the Dec. 5 press release.
In a press conference, Bank of Canada Governor Stephen Poloz said “over time” was inserted to “introduce a degree of ambiguity” into the timing of future rate hikes and that they are not on some pre-set course. “We are decidedly data-dependent and will adapt our inflation outlook and interest rate profile to developments as they unfold,” he said in a prepared speech.“I do think the ‘over time’ statement was significant [particularly for near-term hike prospects], but they did try their best to present a balanced picture,” said Andrew Kelvin, senior Canada strategist at TD Securities. Kelvin said markets are pricing in about a 60 percent chance of only one more rate hike in 2019.
