• The overnight rate was held at 1.75%, as expected
  • Trade policy and global growth concerns highlighted
  • Current accommodation remains appropriate

Today’s policy statement was more dovish than expected. The BoC didn’t move explicitly to an easing bias (unlike the Fed and ECB) but sounded more concerned about “persistent trade tensions” that are clouding the outlook. Poloz and Co. still don’t appear to be in any rush to lower rates alongside the Fed (Powell’s comments this morning reinforced expectations for a July cut) but markets seem justified in thinking the BoC’s next move is more likely to be down than up.

Concerns about trade tensions and slowing global growth received top billing in the statement, unlike in May when signs of a firming domestic economy were highlighted. The BoC noted growing evidence that trade policy and related uncertainty are having “a material effect” on the global outlook, and lowered its global growth forecasts for this year and next. Escalation of trade conflicts remains the biggest downside risk to both the global and domestic outlooks.

On the domestic front, the BoC noted that Canada’s economy is returning to near-trend growth, as expected. They did emphasize, however, that stronger Q2 growth (their forecast now at 2.3% vs 1.3% previously) reflects a rebound from temporary factors that weighed on activity in prior quarters. GDP growth is expected to moderate to 1.5% in Q3. A more challenging global backdrop is dampening the outlook for investment and trade—both are expected to provide less support to growth than previously thought (2020 GDP forecast revised down to 1.9% from 2.1%). Inflation remains close to 2% (something the Fed and ECB can’t claim) and is expected to be sustained at the BoC’s target by the middle of next year as economic slack is absorbed.

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