The central bank noted that inflation in November eased to 1.7 percent due to lower gasoline prices and would likely remain below the bank's 2.0 percent target throughout the year before rising near year's end. After that, views diverge. However, there are increasing signs that the US-China trade conflict is weighing on global demand and commodity prices.
There were no surprises from the Bank of Canada.
"The pendulum in the market often swings more than the underlying facts on the ground", Avery Shenfeld, chief economist at CIBC World Markets, said by phone. Spot US crude has been trading positive since trading session started for New Year and is up almost 8% as of today while Canadian crude oil price is also recovering in broad market.
The Bank of Canada is holding interest rates steady as the economy navigates a temporary period of softness created by the sharp drop in oil prices, governor Stephen Poloz said Wednesday. The consumer sector has been carrying the Canadian economy for years, and this was by the central bank's design; its period of low interest rates after the Great Recession was entirely meant to keep consumer spending flowing while a heavily battered economy made some very hard adjustments. Markets are pricing in zero chance of an increase.
The central bank's quarterly economic update, released Wednesday, shows a sharp deterioration in the growth outlook for 2019.
The bank is now projecting growth to be just 1.7 per cent this year, down from its October forecast of 2.1 per cent - but looking ahead it anticipates fresh momentum starting in the second quarter of 2019 and strong numbers in 2020.
The bank's benchmark rate directly affects the interest rates that Canadian consumers get from their retail banks on their mortgages, loans or on their savings deposits. After that, the pace of the expansion should return to near its recent trend of 2 per cent for the rest of the year.
Recent data have been promising. Canada's economy continues to produce enough jobs to keep the unemployment rate at historic lows, and businesses remain upbeat about investment and hiring plans.
Canada's central bank on Wednesday maintained its key lending rate at 1.75 percent, citing a continued slowing of the global economy and fears over a US-China trade war.
Still, there's enough concern to curb the central bank's enthusiasm for higher rates and even in the best case Poloz is probably already near the end of his hiking cycle.
Housing market taking a lot longer to stabilize than expected. Home sales in the Toronto region fell 16 per cent in 2018, while in Vancouver they plunged 32 per cent. And numerous key factors involved - a slumping oil sector, a stumbling housing market, a continuing adjustment to higher interest rates, tepid wage growth - place this slowdown in the lap of the consumer.
But Poloz isn't sounding like someone who has given up on rate increases.
In its first economic assessment of the year, the central bank said rates "will need to rise over time into a neutral range", or between 2.5 and 3.5 percent, in order to achieve its inflation target.
"Getting there, it's a journey and we expect over time to get there".