Briefing highlights
- Bank of Canada's ‘whiter shade of growth’
- China's economic growth steady
0.5%
Bank of Canada overnight rate
‘Whiter shade of dove’
As BMO Nesbitt Burns put it, the Bank of Canada released a “whiter shade of dove” in its latest decision and monetary policy report.
Even then, it left some wondering if the central bank is still too optimistic in its economic outlook.
What it all means is that interest rates in Canada are going absolutely nowhere any time soon, with the door actually open to a cut.
Indeed, Governor Stephen Poloz told reporters that he and his colleagues “actively discussed the possibility of adding more monetary stimulus at this time,” though in the end they decided against it.
As The Globe and Mail’s Barrie McKenna reports, the central bank trimmed its forecasts for this year and next as it held its benchmark overnight rate steady at 0.5 per cent.
It now sees the economy expanding by 1.1 per cent this year and 2 per cent in 2017, down from earlier forecasts for 1.3 and 2.2 per cent, respectively.
Included in the new forecast is a hit to growth of 0.3 per cent a year by 2018 from the new measures aimed at cooling the housing markets.
While the new projections appear to be largely in line with those of economists for 2016, they’re marginally higher for next year, though the projections of analysts came before the latest report.
Bank of America Merrill Lynch, for example, believes Canada’s economy will grow by just 1.6 per cent in 2017, while BMO Nesbitt Burns forecasts 1.9 per cent.
Here’s the view among economists:
“We maintain that the Bank of Canada delivered a whiter shade of dove in today’s statement, even if the market reaction is somewhat mixed. The bank has cut its GDP forecast heavily, slashed its core inflation outlook, sounds much more concerned about the medium-term prospects for exports, frets about domestic competitiveness, looks for a 0.3-per-cent slice in GDP from the housing measures, and doesn’t see the output gap closing for almost two years. This is a bank that has precisely zero appetite for rate hikes, and seems to be keeping a flame alive for the possibility of rate cuts, should the need arise. We continue to look for the Bank to keep rates unchanged through next year, with the earliest possible move up not until 2018.” Douglas Porter, BMO Nesbitt Burns
“The BoC is clearly communicating that rate hikes are not on the horizon. The central bank incorporated the new housing measures in its analysis and now expects housing to be a drag on growth next year. Note that the federal government will soon release its 2017 immigration target which is expected to be increased significantly from its current level of 300,000/year. If that pans out, housing demand in Canada’s largest metropolitan areas will be boosted. So, perhaps the drag from housing next year may not be as drastic as what’s estimated by the Bank of Canada.” Paul-André Pinsonnault, Krishen Rangasamy, National Bank
“Over all, the bank is clearly on hold for the rest of this year. Next year, however, we expect a more pronounced downturn in housing activity to prompt the Bank to cut interest rates to 0.25 per cent, from 0.5 per cent.” Paul Ashworth, Capital Economics
“Although those forecasts are still a touch stronger than we are expecting, the bank cites that the output gap is now only expected to close by mid-2018. That timeframe is categorized as ‘materially’ later than previously anticipated, a warning to markets that the BoC is only operating with a thin margin of error when it comes to what might prompt another rate cut ... All told, a dovish statement from the Bank of Canada that should keep odds priced for another cut despite the recent strength in Canadian indicators.” Nick Exarhos, CIBC World Markets
“The slightly dovish tone from the Bank of Canada this morning was consistent with this cautious approach .... While the balance of risks remains skewed to the downside and thus towards a cut, the bar to further monetary easing remains high and Governor Poloz will likely be happy to sit on the sidelines for some time to come.” Brian DePratto, Toronto-Dominion Bank
China's growth steady
While these numbers are always in question, China’s official reading shows its economy expanding in the third quarter by 6.7 per cent from a year earlier.
That’s the same as reported for the first and second quarters.
“The official GDP figures remain too stable to tell us much about the performance of China’s economy,” said Julian Evans-Pritchard, the China economist at Capital Economics.
“Our own measure of economic activity suggests that growth actually picked up in Q3,” he added.
“But with credit growth now slowing and policy makers moving to rein in surging property prices, this recovery is unlikely to last for more than another quarter or two.”