TORONTO (Reuters) -The Bank of Canada on Wednesday held its benchmark interest rate at 2.75%, its first pause after seven consecutive cuts.
MARKET REACTION: [CAD/]
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COMMENTS
DOUG PORTER, CHIEF ECONOMIST AT BMO CAPITAL MARKETS
“Obviously it was a difficult decision. The market was much more torn – as were economists – than is normal ahead of a Bank of Canada decision, and understandably so, given the intense uncertainty. … He’s clearly laid open the possibility of getting a lot more aggressive if the economy deteriorates substantially. … As long as Canada isn’t the prime target for the trade war, I think that the Canadian dollar actually can improve here because the U.S. dollar is likely to remain under pressure over the next year in terms of yields.”
ANDREW KELVIN, HEAD OF CANADIAN AND GLOBAL RATES STRATEGY AT TD SECURITIES
“Today’s decision is in line with our expectation, but the Bank of Canada did seem a bit dovish on what is coming next, and I would reference today’s decision to (BoC Governor Tiff) Macklem’s March speech. We thought the bank was clearly laying out what their approach was going to be for conducting policy in an environment of trade uncertainty. And given that the economic data that we have seen in Canada has not been that negative, we did not think there was tangible evidence of a slowdown or clarity on the future path of the economy for the bank to preemptively cut rates, and they are weary about stoking inflation again. Therefore, we looked for a hold and it materialized. I do expect weakness to pile up, and the Bank will be forced to cut rates again. I think if you read in between lines there is a tinge of regret around allowing policy to remain too easy for too long following the pandemic and they would very much not like to repeat that mistake again.”
NICK REES, SENIOR FX MARKET ANALYST AT MONEX EUROPE LTD
“While consensus had been split ahead of today’s rate announcement, we do not think it should come as a surprise that the Governing Council chose to pause its easing cycle in this latest decision.”
“Granted, headline inflation undershot expectations yesterday – this was largely the result of gasoline and travel prices, both of which should be discounted in BoC thinking. More importantly, underlying inflation metrics remain elevated, and are yet to reverse a surprise uptick seen in the February data.”
“We think the Governing Council would have liked to pause easing in March to assess disinflation progress but were prevented from doing so by Trump (administration) tariff risks. With these having faded somewhat for Canada post-Liberation Day, and with a stronger loonie limiting imported inflation pressures, policymakers now have an opportunity to take stock.”
STEPHEN BROWN, DEPUTY CHIEF NORTH AMERICA ECONOMIST AT CAPITAL ECONOMICS
“The Bank of Canada’s decision to keep interest rates unchanged at 2.75% today was not a huge surprise given recent above-target gains in core prices, concerns about future price increases and uncertainty about the extent to which the economy requires additional policy support in the face of ever-changing trade policy. Nonetheless, the bank’s communications were mostly dovish, which lends some support to our view that it will eventually cut interest rates to 2.0% this year, rather than pause at 2.25%, as market pricing implies.”
(Reporting by Fergal Smith, Anna Mehler Paperny and Divya Rajagopal; Editing by Paul Simao)
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