In its first policy statement since July, Canada’s central bank has opted to hold its interest rate at 1.75 per cent.
This is a difference from several other banks, including the US Federal Reserve, which have lessened rates. This seems to indicate Canada’s bank is not as sure as some others that the economy will slow later this year.
Canada’s economy has been growing this summer which usually signals that the bank would increase the lending rate slightly to calm inflation. However, Canada is in a diplomatic dispute with China, affecting exports and the US and China are in a major tariff war and such international trade uncertainty has led to a lessening of business investment.
A statement from the central bank today said, “Canada’s economy is operating close to potential. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the current degree of monetary stimulus remains appropriate.”
There was also a concern that a lower rate might encourage Canadians to borrow and increase the already high household debt levels in this country.
A majority of financial experts seem to feel the trade disputes could lead a further slowing of the economy in turn leading to a possible rate cut in the next policy statement at the end of October.
If not this year, the expectation is that a rate cut would take place early next year.
Additional information-sources
- CBC: Sep 4/19: Bank resists pressure to cut rate
- Financial Post: K Carmichel: Sep 4/19: Bank rate holds, but trade war taking a toll
- BNN-Bloomberg: T Argitis: Sep 4/19: Rate holds steady amid global easing (+ video report)
- Reuters: I Ghosh: Aug 29/19: To hold or cut Bank of Canada dilemma also splits economists
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