OTTAWA—As widely anticipated, the Bank of Canada left its key interest rate unchanged at 1.75 percent on March 6 citing a weaker-than-expected outlook both domestically and globally.
The bank dropped its seemingly entrenched mantra that the policy interest rate will need to rise into a neutral range from its current accommodative level. Now, the interest rate outlook is even more opaque than in January when the BoC made an effort to inject some ambiguity into the timing of future rate hikes.
However, the BoC gave no hint at a potential rate cut even as talk of an economic recession mounted after dismal fourth quarter of 2018 economic growth of 0.4 percent.
“It will take time to gauge the persistence of below-potential growth,” said the BoC in its March 6 press release.
University of Waterloo economic professor Jean-Paul Lam says the bank is no longer talking about getting back to the neutral range for its key rate, which is estimated to be between 2.5 and 3.5 percent.
“They’ve given up on being very forward-looking right now,” Lam said in an interview.
He adds that it’s the first time in a long while he has seen the BoC in a mostly reactionary mode given what economic data comes in.
“They are not trusting their models, they are not trusting in terms of where they see the economy going. They are just reacting to whatever data is coming,” he said.
“That is a position they haven’t been in for a long time in terms of how to set policy.”
Economists agree there is little justification for a rate hike for most of 2019. The Bank of Canada has already raised rates by 1.25 percent since mid-2017.
