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I doubt that anyone seriously expected the Bank of Canada would make any interest rate move last week. Not in the middle of a federal election campaign. To do so would have put Governor Stephen Poloz and his colleagues squarely in the political crosshairs, which is the last thing they need or want.
Had they opted for a third rate cut this year in an attempt to further stimulate the economy, the opposition parties would have used it as ammunition to back up their charges that Conservative policy is running Canada into the ground. Conversely, had the Bank made a surprise about-face and raised rates, Prime Minister Stephen Harper would have undoubtedly seized on such a move as evidence that the short-lived recession was behind us and that his economic stewardship has been a success.
Wisely, Mr. Poloz (who is a Harper appointee) did nothing. Moreover, the unusually brief statement issued by the Bank in conjunction with the rate announcement said very little that was new.
Inflation is evolving in line with expectations. The effects of earlier rate cuts are working their way through the economy. The lower Canadian dollar is helping exports. Risks to financial stability are evolving "as expected".
However, there was one new comment buried in the middle of the statement. The Bank said that while economy is adjusting to lower oil and commodity prices, the process may take a lot longer than anyone expects or wants.
"Canada's resource sector continues to adjust to lower prices for oil and other commodities, with some spillover to the rest of the economy," the statement said. "These adjustments are complex and are expected to take considerable time."
How long is a "considerable time"? There was no hint in the statement, but we're probably talking at least six months and perhaps longer. During that period, the odds will be much more in favour of another rate cut rather than a shift to the upside.
Whichever party comes to power on Oct. 19, the course of the Bank of Canada is unlikely to change. Interest rates will remain low and the downward pressure on the loonie will continue (it does finally seem to be paying off in terms of higher exports). That scenario will likely remain well into 2016.
The next rate setting is due on Oct. 21, two days after we go to the polls. Don't expect Mr. Poloz to rock any boats with that one either.
Of course, the really big news on interest rates will come from the U.S., where the Federal Reserve Board will meet this week. At the start of the summer it was widely believed that this would be the meeting that would end the long interest rate log jam and begin the tightening process. Now the odds appear to be against that with most analysts expecting the Fed to stand pat this time around and wait until fall or winter to move.
There are several good reasons to delay, according to an article in The Economist. They include slow wage growth in the U.S., concerns that raising rates would drive an already too strong greenback even higher, and worries that a rate hike at this stage would slow or derail a still fragile economic recovery.
We'll know the answer on Sept. 17 when we'll not only get a decision on interest rates but also updated economic projections and a press conference by Chair Janet Yellen. All that may set the tone of the markets for weeks to come.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.