Central bank to announce interest rate

Investors see Poloz avoiding a rate cut on bets Trump and Congress will authorise new spending and tax cuts. That could
Central bank to announce interest rate
Author

08 December, 2016

The Bank of Canada is expected to hold its key interest unchanged at 0.50% at Wednesday's policy meeting.

December futures on the S&P TSX index SXFc1 were down 0.04 percent at 7:35 a.m. ET.

"The rapid rise in global yields has occurred really for the wrong reasons for Canada", Gilhooly said, noting that the central bank removed its reference to accommodative financial conditions. That would boost economic growth, inflation and debt: if the Joy of Cooking contained a recipe for higher interest rates, that would be it.

The 2-year yield fell 1 basis point further below its US equivalent to a spread of -40.8 basis points.

"Unlike in past statements, the Bank refrained from making a statement regarding the risks to the inflation outlook, perhaps in part due to the elevated level of uncertainty about the direction of USA fiscal and trade policy under the new Administration", said RBC deputy chief economist Dawn Desjardins in a note to investors. The Bank pointed out that while the American economy is operating near full capacity, Canada continues to have a "significant amount of economic slack".

"Uncertainty, which has been undermining business confidence and dampening investment in Canada's major trading partners, remains undiminished", policy makers led by Governor Stephen Poloz said in a statement Wednesday from Ottawa.

This was the bank's final rate announcement for 2016.

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President-elect Donald Trump and the Republican majority in Congress are talking about big tax cuts and spending hundreds of billions of dollars on infrastructure.

Canada ships three-quarters of its exports to the U.S., making President-elect Donald Trump's possible mix of fiscal stimulus and trade protectionism a key concern north of border.

"In Canada, the dynamics of growth are largely as the Bank anticipated", the BOC said in a brief statement issued alongside its rate announcement.

Canada's economy has showed signs of emerging from the worst damage from a plunge in energy investment, including the fastest output growth in two years last quarter and two months of faster inflation.

Canada sends about three-quarters of its exports to its southern neighbor, which means any changes to US trade policy could have a significant impact on Canada's growth.

According to the bank, the increase in household imbalances will be mitigated over time by changes to housing-finance rules.


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