Why all ears will be attuned to central bank’s tone this week

By Staff | December 4, 2018 | Last updated on December 4, 2018
2 min read
Canada’s two dollar coin is bimetallic, and shows a polar bear, a symbol of concern for the endangered environment.
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No hike is expected when the Bank of Canada makes its next interest rate announcement on Wednesday. However, what is expected are clues as to whether the next hike might come in January—something markets have currently priced in about 70%.

The path of future rate hikes is particularly uncertain with recent soft GDP data and oil’s price drop. In response to oil woes, on Sunday the Alberta government ordered oil producers to cut production by 8.7%, or 325,000 barrels per day, as of January 2019, with cuts rolled back to about one-third of that by spring.

In a report, BMO says the production cut will put a serious dent in forecasted GDP. BMO chopped its own growth estimate for the first quarter of 2019 to 0.7% from 2%. The bank’s forecast for 2019 GDP growth is now 1.8%, down 0.2 of a percentage point. However, with oil production expected to rebound later in the year, GDP in 2020 might experience a lift, says the BMO report. Overall, the bank’s growth downgrade is “modest.”

Still, there’s plenty of uncertainty heading into next year, the report adds. Thus, a more cautious tone is expected from the central bank given soft GDP data for Q3, falling oil prices and a central bank stateside that’s adopted a more dovish tone.

In a CIBC report, chief economist Avery Shenfeld says that, to keep a January rate hike in play, economic data will have to show reasonable hiring and strength in non-energy export volumes in October. He adds that OPEC oil production cuts could prompt a rebound in global crude benchmarks and firm up market expectations for rate hikes next year and also give more support to the loonie.

In a separate CIBC report, economists note that, while the drag on Canada’s energy sector weighs on related equities, the resulting constraining impact on the BoC is supportive for other interest-sensitive stocks.

Advisor.ca staff


The staff of Advisor.ca have been covering news for financial advisors since 1998.