Downside economic risks easing — Bank of Canada joins Fed on sidelines
The Bank of Canada defied market expectations and kept the overnight rate steady on June 10, indicating that the balance of risks
for the inflation outlook have shifted slightly to the upside and "that global growth has been stronger and commodity prices have been
sharply higher than expected."
Tentative signs that the U.S. economy will avoid recession and that financial markets, while skittish, no longer are priced for
recession, have dampened some of the downside risks to Canada’s economic outlook.
Canada’s first-quarter growth rate got bogged down by inventory drag and special factors, but the domestic economy is still
holding up reasonably well and we expect growth to rebound modestly in the second quarter, with the economy growing by 2.5% in
the second half of the year.
The Bank of Canada is unlikely to switch to a tightening policy stance in the near-term, especially with the economy growing at a
slower-than-potential rate this year. The Bank’s concluding statement on June 10 that "there continue to be important downside and
upside risks to inflation in Canada, which the Bank will monitor closely" implies no policy action anytime soon.
A. Mark Argentino
P. Eng. Broker
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