MNI POLICY:BOC Key Rate Unchanged; Drops Ref To Rate Hikes>

By Courtney Tower

     OTTAWA (MNI) - Following are the key points from the Bank of 

Canada's interest rate announcement and quarterly economic analysis 

Wednesday, when the policy interest rate remained at 1.75%, as expected: 

     - The key BOC rate remains at 1.75%, with the Bank of Canada 

dropping any reference to future rate increases in its policy statement. 

The BOC also lowered its estimate of the neutral range to 2.25%-3.25% 

from 2.5%-3.5%. The comment about the policy rate coming up to the 

neutral rate is dropped, suggesting that with the slowing of the 

Canadian economy, rate hikes to get to the neutral rate are further off 

than had been expected. The BOC said an important contributor to the 

change was a drop of 0.25 percentage points in the global neutral rate 

estimate, "and improved modelling." 

     - Given several evidences of slower global and Canadian growth, the 

BOC said that "an accommodative policy interest rate continues to be 

warranted." The  Bank will continue to depend on monitoring new data as 

it arrives to "evaluate the appropriate degree of monetary policy 

accommodation". It particularly is monitoring developments in household 

spending, oil markets and global trade policy, "to gauge the extent to 

which the factors weighing on growth and the inflation outlook are 

dissipating." 

     - Canada's growth is expected to pick up starting in the second 

quarter this year. Housing conditions will stabilize "given continued 

population gains, the fading effects of past housing policy changes, and 

improved global financial conditions." The BOC sees consumption being 

"underpinned by strong growth in employment income." Business investment 

and exports, weak in the energy sector and weakened outside it because 

of "trade policy uncertainty and the global slowdown," will strengthen 

outside of the oil and gas sector. Reasons will be high rates of 

capacity utilization and stronger global demand. 

     - Global growth has slowed by more than the BOC had forecast in 

January, being expected to rise by 3.2% in 2019 rather than 3.4%. It is 

expected to increase by 3.3% rather than 3.4% in 2020 and by 3.3% in 

2021. Trade uncertainties, between the U.S. and China, the U.S. and 

Europe, the U.S. and Canada, are given as the main factor. For Canada, 

the BOC sees real annualized GDP growth of 0.3% in the first quarter 

this year rather than 0.8%, but rebounding to 1.3% in the second 

quarter. Real GDP growth of 1.2% is expected for all of 2019, picking up 

to 2.1% in 2020 and 2.0% in 2021. 

     - Total inflation, represented by the Consumer Price Index, and the 

Bank of Canada's three core measures, all are close to the 2% target and 

are expected to remain so through this year, 2020, and 2021. Total 

inflation will likely dip in the third quarter this year, largely on 

gasoline prices, but return to around 2% by year-end, the Bank said. 

--MNI Ottawa Bureau; yali.ndiaye@marketnews.com

[TOPICS: M$C$$$,MACDS$]