- Chris Wattie/Reuters
The Bank of Canada held rates at 0.5% on Wednesday, as expected.
In the accompanying policy statement, the bank noted that “uncertainty about the global outlook is undiminished, particularly with respect to policies in the United States.”
The bank’s decision comes two days before the inauguration of president-elect Donald Trump, who has espoused a protectionist agenda and proposed fiscal policy initiatives.
The central bank factored in a “modest upward revision” to its US growth outlook.
“Given the considerable uncertainty surrounding exactly what policies the incoming Trump administration will pursue south of the border, we have every sympathy with the Bank of Canada’s decision to leave interest rates unchanged at today’s policy meeting,” Paul Ashworth, chief North America economist at Capital Economics, wrote after the announcement.
“Normally a US fiscal stimulus would be unequivocally positive for Canada via the associated boost to Canadian exports. But in this case a so-called border adjustment corporate tax is still apparently on the table, which could hit Canada’s economy quite hard,” Ashworth continued.
“There is also still some uncertainty surrounding exactly what Trump wants from the NAFTA renegotiations, although the latest media reports suggest the focus of the American effort will very much be on Mexico.”
Still, in a recent interview with the Wall Street Journal Trump said that the border-adjustment plan, which would tax imports and exempt exports, is “too complicated.”
“Anytime I hear border adjustment, I don’t love it,” he said in an interview with the WSJ on Friday. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”
The Bank of Canada also wrote that inflation has been lower than forecast since October amid declines in food prices, and it forecast that Canada’s real GDP will grow by 2.1% in both 2017 and 2018. Additionally, it noted that the Canadian dollar has strengthened along with the US dollar against other currencies, which further dampens the outlook for exports.
“Unsurprisingly, for now at least, the Bank is firmly in wait-and-see mode,” Ashworth added in conclusion.
The Canadian dollar is down by 1.0% at 1.3183 per US dollar as of 12:13 p.m. ET.
- Markets Insider