There was a subtle change the Bank of Canada made in their most recent interest rate announcement that I thought would be worth highlighting for you.
As anticipated, the Bank of Canada (BoC) held the key lending rate at 1.75%. The Banking Prime rate remained unchanged at 3.95%.
Highlighting this decision was:
- Ongoing uncertainty related to trade conflicts has undermined business sentiment and activity.
- Last year’s oil price decline and ongoing transportation constraints have curbed investment and exports in the energy sector.
- Investment outside the energy sector have been negatively affected by trade policy uncertainty and the global slowdown.
- Weaker-than-anticiapted housing and consumption also contributed to slower growth.
I don’t think any of these reasons are new to my readers. However …
There Was A Change Worth Noting …
Our Central Bankers have been pretty clear on their long-term agenda of returning the economy home.
What does that mean?
Returning the economy home means closing Canada’s economic output gap, while maintaining the 2% inflation target.
Measuring the National economic output gap is kind of a whimsical thing because the full potential economic output of Canada is theoretical.
The output gap is the difference between Canada’s full potential economic output and the actual output.
Hang In Here People, I’m Going To Bring This Email Home (lol) …
Enroute to returning Canada’s economy home, and maintaining the 2% inflation target, means strategically raising interest rates.
The plan is to raise interest rates to a point where they are neither stimulative or restrictive to the economy (neutral interest rate).
The estimated band of Canada’s neutral interest rate has been revised lower (isn’t this soo exciting, haha).
The neutral Bank rate or Key lending interest rate, as estimated by the Bank of Canada, is now 2.25% – 3.35%. Today that rate is 1.75%.
This provides us some context to the direction the Bank of Canada is outlining for Canada’s interest rate path moving forward.
The BIG caveat is …rate hikes are based on incoming data (see top of this post).
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Thanks for hanging in there and reading this email with me.
Signed,
Chad “trying to keep things interesting” Moore
P.S
Thank you for thinking of me as a trusted referral source. Feel confident that you “gotta-guy”.
