Loonie Surges As BOC Keeps Rate Unchanged, Cuts 2016, 2017 GDP, Blames Brexit, Wildfires, Weak Consumption
By Tyler Durden
The Bank of Canada did not surprise moments ago when it kept the overnight rate at 0.5%, as expected The Bank said that the “current stance of monetary policy is still appropriate” adding that risks to inflation profile are roughly balanced. It also said that “fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty.”
Where the BOC did surprise was in its latest cut to Canada’s economic outlook: the central bank now expects GDP to grow 1.3% in 2016, 2.2% in 2017, down from 1.7%, 2.3%, respectively.
The BOC said that Real GDP is expected to fall 1% in 2Q, pulled down by “volatile trade flows, uneven consumer spending, and the Alberta wildfires.” It does expect Real GDP to grow 3.5% in 3Q as oil production resumes, rebuilding in Fort McMurray occurs, and the Canada Child Benefit boosts consumer spending. However, that won’t offset the full year slowdown, which sees 2016 growth slased by 0.4%.
Some other points:
- Brexit to decrease the level of Canada’s GDP by 0.1% over projection period
- Contribution of exports to average annual real GDP growth in 2016 revised downwards to 0.3 from 1.1 percentage points
- Bank: Output gap will close near the end of 2017, later than estimated in April, due to downward revisions to business investment
- Contribution of business fixed investment to average annual real GDP growth in 2017 revised downwards to 0.2 from 0.4 percentage points
- Recent housing market developments in Vancouver and Toronto have “exacerbated” financial vulnerabilities in the household sector
- Contraction of investment spending in the oil and gas sector will be nearly complete by end of 2016
The Loonie’s kneejerk reaction shows an immediate relief that the BOC did not cut, although rate cuts may still be coming.
Full statement below:
The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Inflation in Canada is on track to return to 2 per cent in 2017 as the complex adjustment underway in Canada’s economy proceeds. The fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty.
In this context, the forecast for the global economy has been marked down slightly from the Bank’s April Monetary Policy Report (MPR). Global GDP growth is projected to be 2.9 per cent in 2016, 3.3 per cent in 2017, and 3.5 per cent in 2018. In particular, after a weak start to 2016 the US economy is showing signs of a rebound, with a healthy labour market and solid consumption growth. In the wake of Brexit, global markets have materially re-priced a number of asset classes. Financial conditions, already accommodative, have become even more so.
In Canada, the quarterly pattern of growth has been uneven. Real GDP grew by 2.4 per cent in the first quarter but is estimated to have contracted by 1 per cent in the second …read more
