Today, the Bank of Canada announced that it will hold interest rates steady as evidence shows that the global economy is stabilizing. Growth is expected to increase over the next couple years, with financial markets supported by “central bank actions and waning recession concerns.”
Trade conflicts and their related concerns are still impacting global economic activity. The U.S.-China trade war and slow growth has resulted in cuts at other banks, who have weighed these concerns heavily in the decision-making process. Despite this, Canadian currency and commodity prices have remained stable.
The decision to keep rates at 2 per cent is consistent with an “economy operating near capacity,” stated the press release Wednesday. According to The Globe and Mail, “rate cuts in recent months by other central banks, including the U.S. Federal Reserve, have provided important support for the global economy and financial markets.” This news has eased fears of a deeper global downturn.
In recent months, economists worried about contagion as a result of escalating trade conflicts, which caused a weakening of business investments, and more than the Bank of Canada had predicted. In the United States, growth had slowed but had remained steadfast due to consumer and government spending.
“There is nascient evidence that the global economy is stabilizing,” stated the Bank of Canada. “Financial markets have been supported by central bank actions and waning recession concerns.”
Growth in Canada has been supported by consumer spending, stronger wages, housing investments and population growth. With respect to the housing sector, the Bank continues to “monitor the evolution of financial vulnerabilities,” in turn assessing how momentum in investment is being renewed.
Any future decision to lower the overnight rate will be based upon the “adverse impact of trade conflicts against the sources of resilience in the Canadian economy,” most importantly consumer spending and housing activity. An updated outlook can be expected in January.