Canada’s central bank is keeping its overnight rate target at 0.75% for the time being, it announced March 4.
The Bank of Canada surprised analysts in January by cutting the overnight rate by 25 basis points from 1%, where it had been for more than four years.
“Financial conditions in Canada have eased materially since January, in response to the bank’s recent monetary policy action and to global financial developments,” the bank said in a release. “This easing is reflected across the yield curve and in a wide range of asset prices, including the Canadian dollar.
“These conditions will mitigate the negative effects of the oil price shock, further boosting growth through stronger non-energy exports and investment.”
CPI inflation has dropped as anticipated, driven by falling oil prices. Both the global and Canadian economies are evolving as expected and risks are now more balanced, the Bank of Canada said.
The decision to hold the rate steady is in line with the speech by Governor Poloz February 24, in which he said the January rate cut gives the bank a chance to see how the Canadian economy responds to the drop in oil prices, said Josh Nye, economist at RBC Economics.
“Today’s rate announcement was consistent with that assessment, as easier financial conditions were seen as contributing to ‘more balanced’ risks around the inflation profile and an ‘as expected’ evolution in financial stability risks,” Nye said.
BMO’s Douglas Porter said today’s decision does not negate the possibility of further rate cuts in the future.
“However, it likely would require a serious downside surprise in growth and/or inflation in the next three to four months, or a renewed dive in oil prices, to prompt the bank to cut again,” Porter said.
“Put plainly, the chances of another rate cut now look markedly lower on the bank’s fine-tuned message.”
The Canadian dollar reacted positively to the announcement, jumping more than half a cent to 80.41 cents U.S.
The Bank of Canada will make its next rate announcement April 15.
