Blog – Bank of Canada Opts for Reality Over Rosy

September 7, 2016

Bank of Canada Opts for Reality Over Rosy

If the July Bank of Canada policy meeting was an exercise in wearing rose coloured glasses, this morning’s statement was more a reality check. Yes, the Bank left its overnight rate target unchanged at 0.5% and Mr. Poloz and crew still believe the second half of this year will show a rebound versus the first half. That said, the Bank backed away a little from its optimistic tone of July and now thinks that inflation risks have “tilted somewhat to the downside” and growth “may be somewhat lower” than the July forecast. There is good reason for the more cautious message given that Canadian economic numbers this summer have been anything but fantastic (stripping out continued signs of an overheated housing market) and things are beginning to cool off in the US. On top of this we have uncertainty over Europe brewing into October and the spectacle we call the US election in November. There was little chance the Bank would take out insurance this morning in the form of a rate cut, but I still contend it does not want the Canadian dollar trading near 80 cents and would prefer insurance in the form of a sub 75 cent dollar. The more dovish lean today has taken some of the steam out of the Loonie but Mr. Poloz will have to do more if real insurance is needed.