Bank of Canada\/Flickr<\/a><\/em><\/p>\nIt\u2019s your move, Canadian policymakers.<\/p>\n
Last month, the US Federal Reserve slashed its benchmark rate by 25 basis points to a target range of 2 percent to 2.25 percent.<\/p>\n
The last time the Fed trimmed its target was 2008, when the American economy was in the grips of the Great Recession.<\/p>\n
Typically, central banks on both sides of the border act in tandem, so it begs the question: what should the Bank of Canada do next, with another policy-rate announcement scheduled September 4th?<\/p>\n\n
Nothing. For the time being, at least.<\/p>\n
So suggests Central 1 Credit Union in a recent report.<\/p>\n
\u201cAt the Bank of Canada\u2019s next rate announcement, it will not follow the Fed\u2019s rate cut and remain on hold,\u201d writes Central 1 Chief Economist Helmut Pastrick.<\/p>\n
That\u2019s been the Bank of Canada\u2019s approach since late October 2018, when it last hiked its policy rate \u2014 which influences the mortgage market \u2014 by 25 basis points to 1.75 percent. It was the final in a series of five increases since summer 2017.<\/p>\n
The central bank, which had kept rates low to stimulate economic activity through borrowing, was expected to keep nudging interest rates higher as the economy rebounded.<\/p>\n
But slower-than-expected economic expansion and global trade uncertainty have since kept policymakers to the sidelines.<\/p>\n
Pastrick expects this is where policymakers will stand until next year, noting Canada surpassed the US in terms of GDP growth in the second quarter (and the latter\u2019s recent rate cut was more cautionary than a sign of outright weakness).<\/p>\n
\u201cA holding pattern in the Bank\u2019s policy rates is expected through this year and into 2020 before easing with one quarter-point rate cut in April 2020 in response to Canada\u2019s slowing growth and growth prospects,\u201d writes Pastrick.<\/p>\n
The possibility of more aggressive stateside trade policy is cited as one reason to anticipate a rate cut from the Bank of Canada.<\/p>\n
\u201cTariffs by the U.S. could expand to include autos and other goods dragging down the European and Asian economies, commodity prices, and Canada\u2019s economy. Based on past performance the chance of this occurring is high,\u201d notes Pastrick.<\/p>\n
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