Today, the Bank of Canada is set to make its latest interest rate decision. This comes as China finds itself under dire economic strain amid escalating pressures from the ongoing trade war with the United States. According to market analysts, bets on the central bank’s next policy direction are almost evenly divided. Some think the central bank will hold firm, while others expect it to lower its key interest rate.
The most recent stats from the Canadian government’s own statistical agency Statistics Canada indicate that annual inflation has already cooled to 2.3 percent. This troubling finding led to the original decision. An unhappy trifecta According to the Bank of Canada, we find ourselves in a very difficult triple whammy. It says it doesn’t think it can address the economic impact from U.S. tariffs and deal with the inflationary impact of that trade war concurrently.
The approaching tariff war makes the central bank’s choices much harder. Economists warn that these outside factors would threaten continued economic growth and inject new uncertainty into financial markets. In March, the Bank surprised markets and cut its policy rate by a quarter point to 2.75 percent. In this policy shift, we see the beginning of a more cautious approach to monetary policy in light of deteriorating economic circumstances.
As the new central bank prepares to consider its next move, everyone is looking. A hold would send a clear signal of deep confidence in our short and medium-term economic success. By contrast, a cut would be welcomed as a much-needed response to pressures caused by international trade disputes. As Mark Carney, governor of the Bank of Canada, has said, fighting inflation while dealing with the trade-related economic effects is a very complicated task.
