For a third consecutive time since mid-March, the Bank of Canada has decided to maintain its master rate of 2.75 %.
The Central Bank explains its decision especially by the context of economic uncertainty aroused by the vagaries of customs duties from the Trump administration in Washington.
In return, the Bank of Canada leaves the door open to next rate drops if the economy is weakening and inflationary pressures stabilize.
In his official statement, the Governor of the Bank of Canada, Tiff Macklem, indicates that “in this context where uncertainty [des mesures commerciales américaines] remains high, where the Canadian economy shows a certain resilience and where pressures remain on basic inflation, the management board [de la Banque du Canada] decided to leave the key rate unchanged. »»
“We will continue to analyze the evolution and the strength of the pressures on inflation – those downstairs arising from the weakening of the economy and those uphill arising from the rise in costs attributable to customs duties and the reorganization of trade. »»
The Bank of Canada will therefore monitor the impact of American customs duties on economic activity and Canadian exports. It will also monitor the possibility that the increase in costs linked to the Customs Rights of Riposte of Canada is affected on consumer prices.
But for the moment, noted Governor Macklem in a press briefing, the increases in customs duties are “lower than those that the American administration had threatened to apply”, even if they remain higher than recent historical levels.
The risks of a “serious” world trade war has decreased in recent months, he added.
In the meantime, while the total inflation rate increased by 0.2 % to 1.9 % in June, Canada Bank anticipates a basic inflation rate around 2.5 %, which would still be close to its target.
Also, the labor market shows a certain weakness in the sectors exposed to customs duties, such as the manufacturing sector, but other sectors continue to create jobs.
For the continuation, the management of the Bank of Canada indicates that a next reduction in the interest rate “may be necessary” if the weakening of the economy should increase, and that “the upward pressures on prices arising from the disruption of customs tariffs remain contained. »»
The next Interest Rate Decision Director of the Bank of Canada is scheduled for Wednesday, September 17.
What experts think:
Douglas Porter, chief economist and director, Banque de Montréal (BMO)
Photo François Roy, Archives La Presse
Douglas Porter
“There are simply too many persistent uncertainties concerning trade so that the Banque du Canada can be decisive on economic prospects at the moment. Consequently, next rate drops will depend on the continuous weakening of the economy and the attenuation of inflationary pressures. Those who hope for interest rate reductions must still be patient. »»
Philippe Simard, mortgage director in Quebec at Ratehub. That
“For those who are currently looking for a property, the maintenance of the key rate (at 2.75 %) means that there will be no change for mortgages with variable interest rate. However, this status quo [de taux directeur] will help maintain bond yields at their high levels, which could maintain upward pressure on fixed mortgage rates as we have seen in recent weeks. »»
Claire Fan, main economist, royal bank (RBC)
“The economic prospects remain vague, while the customs prices put in place so far have been less severe than feared. However, as one of the largest trade partners in the United States, Canada remains particularly vulnerable to American protectionist trade policies. Although the Bank of Canada provides an increase in inflation, new rate drops would be appropriate if it became obvious that the economy slipped into a recession. »»
Tiago Figueiredo and LJ Valencia, economists at the Desjardins movement
“It seems that the Bank of Canada is preparing to return to monetary relaxation [NDLR baisses de taux] Later this year. In addition, its inflation forecasts in the current context of customs duties seem high. This could open the door to inflation below the forecasts in the coming months, and restore confidence to the leaders of the Central Bank to implement recovery measures as a rate drop. Consequently, we continue to provide three rate drops this year, starting with a reduction of 25 base points (0.25 %) during the next announcement of the Bank of Canada in September. »»
