Bank of Canada seen holding rates up to 2020

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    BENGALURU – The Bank of Canada is now expected to hold rates through to the end of next year, according to a slim majority of economists in a Reuters poll, with forecasts on whether or not the central bank holds or cuts sitting on a knife’s edge through 2020.

    The latest Reuters poll of over 30 economists taken Nov. 19-26 showed the BoC will hold its key overnight interest rate at 1.75 percent this year and next, flipping from equally narrow expectations for a rate cut early next year in the last poll.

    That change in expectations was primarily driven by comments from BoC officials – Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins – who spoke last week at separate events about Canada’s monetary conditions being “about right” despite global trade tensions.

    Every respondent in the poll expected rates to remain on hold at the conclusion of the BoC’s Dec. 4 meeting, in line with market expectations.

    When asked if the Canadian economy actually needs a rate cut before the end of next year, a slim majority of economists – 13 of 24 – said no. Just a month back, a similar set of economists were slightly inclined toward a cut.

    “The Bank is going to be patient here and not going to be in a great rush. … I think they will want to save ammunition for when the situation potentially deteriorates more significantly, which I am not expecting anytime soon,” said Helmut Pastrick, chief economist at Central 1 Credit in Vancouver.

    “But, the global situation is still unsettled given the US-China trade issues and the impact that it is having on commodity prices, which is still important for Canada and overall sentiment as well.”

    Notably, four of the top five major Canadian banks expected the BoC to cut rates at least once by end-2020.

    The BoC has stayed on the sidelines this year given its strong domestic economy, diverging from its major peers like the US Federal Reserve and the European Central Bank which have already cut rates. The ECB has also re-started its asset purchases program.

    While both headline and core inflation have hovered around the central bank’s target of about 2 percent since May, the Canadian economy was expected to lose growth momentum over the coming year, a separate Reuters survey showed. – Reuters