MNI POLICY: BOC Optimism On 2Q Is No Path To Rate Increase

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada won't be signaling a rate increase

anytime soon even as policy makers show optimism the economy is rebounding.

     Governor Stephen Poloz and his deputies held the key lending rate at 1.75%

on Wednesday and touted half a dozen areas of improvement from consumer spending

to business investment. They also said a stimulative interest rate ``remains

appropriate'' as global trade conflicts escalate and China restricts Canadian

exports.

     ``The statement was perhaps more uplifting than what the market thinks, but

there are still significant headwinds,'' said Jeremy Kronick, associate research

director at the C.D. Howe Institute and a former BOC researcher. The BOC is far

from signaling any rate increase, especially when the Fed isn't moving that way,

he said by phone from Toronto.

     The BOC raised rates in October and dropped language about the need to do

more in March on signs economic growth was stalling in in the first quarter.

Today's statement made no direct reference to raising rates, or lowering them as

some investors are betting will happen later this year.

     ``The degree of accommodation being provided by the current policy interest

rate remains appropriate,'' the BOC's one-page statement said. ``Overall, recent

data have reinforced Governing Council's view that the slowdown in late 2018 and

early 2019 was temporary, although global trade risks have increased.''

     The improvements the BOC mentions aren't delivering the ``rotation'' of the

economy away from spending by indebted consumers to growth led by business

spending, Kronick said. Global trade tensions may do more damage to Canada than

gains from ending metals tariffs with the U.S. and steps to ratify a treaty to

replace the NAFTA pact, he said.

     ``In Canada things look pretty good, but externally things look a little

more concerning,'' Kronick said.

     The BOC also said inflation will remain around its 2% target in coming

months, and future policy decisions will depend on fresh economic data on

household spending, oil markets and global trade.

     Investors will have another update Thursday when Senior Deputy Governor

Carolyn Wilkins gives a speech in Calgary, with the text available at 14:15

Eastern Time.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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