Greater volatility and tighter fiscal conditions will set the tone for 2019
Amid a cooling economy, Canada’s central bank is likely to keep its interest rates flat until at least next year, according to money manager BlackRock Inc.
The Bank of Canada will hold off from the hikes “given increased market volatility and more restrictive financial conditions,” BlackRock head of Canadian fixed income Aubrey Basdeo told BNN Bloomberg.
“The bank has latitude to go on an extended pause,” Basdeo explained. “What’s the rush to get to neutral if inflation’s not an issue?”
Another chief factor is the reduced inflationary pressure from lower petroleum prices.
“With some of the volatility we’ve seen in the financial markets and the lower oil prices’ impact on economic activity in Western Canada, the Bank of Canada can afford to be cautious and will be in no rush to their next rate hike,” TD Bank senior economist James Marple stated late last month.
Read more: Latest inflation readings do not justify January hike
Multinational investment bank Morgan Stanley disagreed, however, stating that while a less-than-stable housing market and flagging business investment are certainly formidable economic challenges, “the risk of a hawkish surprise is growing” from the BoC.
“Increasing prospects for a weaker USD, an underpriced BOC curve, increasingly balanced risks on oil and supportive technicals suggest USD/CAD should fall from here,” according to foreign-exchange strategists David Adams and Sheena Shah.
