Trade war getting harder to ignore for BOC
The Bank of Canada is expected to open the door further to interest rate cuts at a decision Wednesday, amid worries U.s.-china tensions will curb a relatively robust expansion at home.
In a policy statement due at 10 a.m. that’s likely to keep benchmark rates unchanged at 1.75 per cent for now, economists expect governor Stephen Poloz will underline his unease with the global trade outlook and signal a greater willingness to join the Federal Reserve and other central banks in cutting borrowing costs, as early as next month.
The case for cheaper money isn’t as compelling in Canada as it is elsewhere. A strong run of economic data affords policy-makers opportunity to resist the dovish turn in global policy. But escalating tensions between China and the U.S., and their spillover into Canada, are getting tougher to overlook, particularly given how they’ve already become a major reason behind global factory weakness.
“The truth of the matter is, if you go back really over the last month and a half, the domestic picture hasn’t changed in Canada,” said Mark Chandler, head of fixed-income research at Royal Bank of Canada, who sees a rate cut in January. “Trade risks have increased but we really don’t know at this stage to what degree they’ve altered the outlook for the bank.”
Complicating matters is that the Bank of Canada hasn’t made any public comments since its last rate decision on July 10. Wednesday’s decision is a statement-only affair. The next day, deputy governor Lawrence Schembri will give a speech in Halifax to provide more details on the central bank’s deliberations around the decision.
Odds for a rate cut on Wednesday are less than 10 per cent.