MNI REVIEW: BOC Optimism on Global Outlook Curbs Rate-Cut Bets

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada's view that the global economy is

stabilizing and domestic spending is resilient means some investors are scaling

back bets on a reduction to the G7's highest policy interest rate next year.

     Canada's dollar strengthened Wednesday after the BOC said that while trade

fights remain the biggest risk, "there is nascent evidence that the global

economy is stabilizing." Governor Stephen Poloz and his deputies also flagged

another positive for global trade pressures by saying Canada's dollar and

commodity prices have been relatively stable. 

     After Wednesday's decision, investors put the odds of a BOC rate cut next

year at 70%, down from 80% in recent weeks, as the Fed and other central banks

added stimulus to curb the potential for a U.S.-China trade war to trigger a

global recession. The BOC saw signs of domestic strength as well, including

consumer spending and even business investment that has been frustratingly weak

for years. 

     "Today's statement dialed back the dovish rhetoric of the prior statement,

and as such suggests that the BoC is pretty firmly on hold for now," CIBC

economist Andrew Grantham wrote. "Investors will now be dialing back the

probability of a BoC interest rate cut in the near-term." Stephen Brown at

Capital Economics also wrote the BOC will remain on hold through all of next

year. 

     The last public BOC events of 2019 come tomorrow with a "progress report"

speech by Deputy Governor Tim Lane in Ottawa, and a Poloz speech on Dec. 12. 

     With Wednesday's statement saying the 1.75% rate remains "appropriate" in

an economy near full potential and inflation expected to hold at the BOC's 2%

target, they may not have much chance to introduce major new notes of pessimism.

     Lane speaks just a few hours before the BOC may get fresh boost from fiscal

policy, with Justin Trudeau's newly re-elected Liberals expected to announce a

household tax cut.

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

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