Bank of Canada Seen as On Hold Until October

The Bank of Canada is widely expected to keep its benchmark interest rate on hold at a policy announcement on Wednesday, in part to allow more time to see how last-ditch efforts to include Canada in a new North American Free Trade Agreement unfold.

Economists from nine of 11 primary dealers of Canadian government securities told The Wall Street Journal they expect the Bank of Canada to keep the target for the overnight rate unchanged this week at 1.50%. A majority of those surveyed said the central bank would likely wait until October to raise its key rate.

“There isn’t a lot of suspense around the next rate decision,” TD Securities economist Andrew Kelvin said. He said the central bank had emphasized the importance of raising rates gradually to help cushion the blow for heavily indebted households. The Canadian economy was performing largely as expected, Mr. Kelvin added, suggesting there was no need to quicken the pace of rate increases.

The Bank of Canada last raised the key rate in July, by a quarter-percentage point, marking its fourth increase since mid-2017.

Although headline inflation came in well above expectations in July, at a near seven-year high of 3%, the central bank’s preferred measures for core inflation held steady at around 2%. The Canadian economy expanded 2.9% in the second quarter, roughly in line with the Bank of Canada’s most recent forecast.

Several economists surveyed said the central bank is facing heightened uncertainty over the future of Nafta. On Monday last week, the U.S. and Mexico reached an agreement after weeks of talks, and President Trump said Canada had until last Friday to negotiate a pact with the U.S. or else risk being excluded from the deal. The Friday deadline passed with no pact, but talks between the two countries are set to resume on Wednesday.

Nafta is crucial for Canada, which sends about three-quarters of its exports to the U.S., accounting for roughly one-fifth of the country’s gross domestic product. A Bank for International Settlements report last week estimated that a complete revocation of Nafta could cause a 2.2% decline in Canada’s gross domestic product—by far the biggest hit among the three Nafta countries.

Source: The Wall Street Journal

Original Post: Bank of Canada Seen as On Hold Until October

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